Budget 2023 – A curate’s egg for taxpayers

The changes, which would mean that individuals having taxable income of less than Rs 7 lakh need not pay any tax, would result in a revenue loss of Rs 35K

For the taxpayers, the Budget 2023, presented by our finance minister Nirmala Sitharaman, was a curate’s egg. There was some relief for the senior citizens and taxpayers in the new tax regime, but no sops for those staying in the old regime. Let’s understand the implications of the budget proposals for the taxpayers.

Personal Income Tax Structure

As of now, a taxpayer could choose between two tax regimes. Since there were very few takers for the new tax regime, the FM announced the following five changes in the new regime to nudge taxpayers to move to the new regime. It was more than a nudge, since the FM stated in the speech that the new tax regime would become the default option for taxpayers.

-The exemption amount is increased from Rs 2.5 lakh to Rs 3 lakh.

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-Surcharge on incomes above Rs 5 crores reduced from 37 % to 25 %

-Income tax slabs are reduced from 6 to 5 with the 25 % rate scrapped.

-Standard deduction of Rs 50,000 has been implemented for salaried class and pensioners.

-Rebate has been increased under the new tax regime for taxable incomes up to Rs 7 lakh.

The changes, which would mean that individuals having taxable income of less than Rs 7 lakh need not pay any tax, would result in a revenue loss of Rs 35,000 crore. There was relief for non-government employees on tax on leave encashment, on retirement, which was increased to Rs 25 lakh from Rs 3 lakh.

Threshold limit for presumptive taxation scheme

The budget increased the threshold limit for presumptive tax for eligible businesses to Rs 3 crore from Rs 2 crore turnover and for professionals to Rs 75 lakh from Rs 50 lakh receipts, provided cash receipts did not exceed 5% of receipts/ turnover.

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Income from Life Insurance policies

Maturity proceeds from high-value insurance policies-having premiums paid above Rs 5 lakh in a year, which were exempt under Section 10 (10D) would now be taxable as income from other sources. However, even in such cases, income is exempt if the sum is received as death benefits by the nominee

TCS on foreign remittance and foreign travel

As per the existing exchange control regulations a resident investor could remit up to $250,000 per financial year, for many transactions like buying financial and physical assets, education, gifts, travel abroad et cetera. Currently, a bank or an authorized dealer is liable to collect TCS (tax collected at source which is different from TDS) of 5 % on remittances of Rs 7 lakh or more, per PAN, per financial year. TCS on remittances was introduced in 2020. This budget while removing the annual limit of Rs7 lakh has also increased the TCS steeply to 20 % on LRS (Liberalised Remittance Scheme) remittance, except for education or medical treatment. If you are planning foreign tours, they would become more complicated! While TCS is not a tax, the remitter has to claim this as refund or adjust it against their tax liability while filing their IT return. The FM might have had an eye on individuals who were outside the tax net but using the LRS route to transfer huge amounts outside the country.

Tweaking use of Capital gains

The Budget has plugged a loophole related to the capital gain exemption for a residential house, that previously allowed claims of huge deductions by high-net-worth individuals. FM has proposed to cap the deduction from capital gains on investment in residential houses under Sections 54 and 54F to Rs10 crore. With effect from assessment year 2020-21, a taxpayer has the option to make an investment in two residential house properties in India to claim Section 54 exemption. HNIs would claim deductions under these sections by purchasing very expensive houses defeating the very purpose of these sections.

Sops for Senior Citizens

There was good news for senior citizens in the budget. The investment limit has been doubled to Rs 30 lakhs in the senior citizen’s savings scheme (SCSS). For senior citizens looking for tax benefits, safety & interest income SCSS is like an oasis in the desert. The scheme has a tenure of 5 years and offers 8 % interest, payable quarterly. The scheme comes under the exempt tax category. The monthly income scheme (MIS) has also been more attractive and the investment limit has been doubled from Rs 4.50 lakh to Rs.9 lakh. In the case of joint accounts, the investment limit has been increased from Rs.9 lakh to Rs 15 lakh. MIS has a tenure of 5 years and offers an interest of 7.1% per annum.

(The writer is a CFA and former banker. He is currently with the Manipal Academy of Higher Education in Bengaluru)