Major Changes under Income Tax in Budget 2023

1. Increase in Rebate under Section 87A

A Resident Individual is entitled to a Rebate of 100% of the amount of tax payable under the provisions of Section 87 A of the Act for the total income up to Rs. 7 Lakhs ( earlier it was Rs. 5L)

(However such increased limit of rebate will be applicable only in the new regime under Section 115BAC)

2. Introduction of Section 80CCH and Section 10(12C) of the Income Tax Act

Agnipath Scheme is a scheme notified by Ministry of Defence for the enrolment of Agniveers in Indian Armed Forces.

A new Section 80CCH provides that an assessee (individual) who enrolled in the Agnipath Scheme and subscribed to Agniveer Corpus Fund on or after 1st November 2022 shall be allowed a deduction of whole amount of amount deposited by him and the contribution of Central Government to his account.

Any amount received from the Agniveer Corpus Fund by the person enrolled under the Scheme or his nominee is exempt from tax under Section 10(12C) of the Income Tax Act.

3. Changes in Section 115BAC (New Tax Regime)(applicable from AY 2024-25)

The major change proposed in Budget 2023 is change in slab rates under New regime. The comparative analysis is presented as follows:

And the Highest Surcharge (i.e., income more than Rs. 5 Crores) has been reduced from 37% to 25% in new tax regime.

4. Section 115BAC (New Tax regime) further amends to provide the following deductions which were not allowed earlier.

• The standard deduction of Rs.50,000 ( In case of Salaries)
• Contribution by Central Government to Agniveer Corpus Fund as mentioned under Section 80CCH above.
• Deduction in respect of family pension under Section 57 (iia) of the Income Tax Act.

Section 57(iia) of the Income Tax Act

Family pension will be taxable under Income from Other Sources subject to the deduction of the following:

• 1/3rd of such pension (or)
• 15,000

Whichever is less.

5. Surcharge on Advance tax in respect of income under new tax regime under Section 115BAC

In the case of every Individual, HUF, APO, BOI, whether incorporated or not or every artificial judicial person referred u/s 2(31)(vii),

If the toal income (Excluding the income by dividend or income under the provisions of Section 111A, 112, 112A) exceeds Rs.2 Cr surcharge on such advance tax will be 25%.

6. A new Section for new Cooperative Societies

A new Section 115BAE has been inserted in Budget 2023 to provide a new manufacturing Cooperative Society which is set up on or after 01.04.2023 and commences it manufacturing or production before 31.03.2024 and does not avail any specified deductions may opt for a concessional tax rate of 15% along with the Surcharge of 10%.

However, the eligible cooperative Society can exercise this option only before the due date of filing the return (original due date under Section 139(1)). And such option once exercised will apply to subsequent financial years as well.

7. Increasing Threshold Limits for Presumptive Taxation scheme (From AY 2024-25)

• The limit of Presumptive Taxation under Section 44AD for eligible Business has been increased from the existing limit of Rs. 2 Crores to Rs.3 Crores
• The limit of Presumptive Taxation under Section 44ADA for eligible professionals has been increased from the existing limit of Rs.50 Lakhs to Rs.75 Lakhs.

However such increased limits will apply provided that the amount or aggregate of amounts received during the previous year, in cash does not exceed 5% of the Total Turnover or Gross receipts as the case may be.

And the receipt by a Cheque drawn on Bank or Bank draft which is not an account payee shall be deemed to be receipt in cash.

8. In view of promoting the timely payments to Micro and Small Enterprises, a new clause under Section 43B have been inserted which states that any sum payable by the assessee to MSME will be allowed as deduction only on actual payment.

Section 15 of MSMED Act mandates payments to MSME within time prescribed as per written agreement which cannot be more than 45 days. If there is no such written agreement the section mandates the payment within 15 days.

Hence the proposed amendment will allow the payment made as deduction ONLY on PAYMENT BASIS but not on accrual basis.

9. TDS and Taxability on net winnings from online games

Section 194BA of the Income Tax Act

• A new Section 194BA has been inserted which provides for deduction of tax at source on net winnings in the user account at the end of financial year.
• In case there is any withdrawal from the user account during the financial year, tax shall be deducted at the rates in force at the time of such withdrawal.
• And on the remaining amount of net winnings in the user account, income tax shall be deducted at the end of the financial year.
• In case where the net winnings are wholly in kind or partly in cash and partly in kind, but the part in cash is not sufficient to meet the liability of tds in respect of whole winnings, ensure that tax has been paid in respect of the net winnings.

Net winnings shall be computed in the manner as may be prescribed and it is applicable from 01.07.2023

Section 115BBJ of the Income Tax Act:

A new Section 115BBJ is inserted and it is applicable w.e.f AY 2024-25 with regard to tax on winnings from online games to provide that where the total income of the assessee includes any amount by way of winnings from any online game, the income tax payable shall be the aggregate of

• Amount of income tax calculated on net winnings from such online games during the previous year computed in the prescribed manner at the rate of 30% and
• The amount of income tax with which the assessee would have been chargeable had his total income been reduced by the net winnings referred to above.

10. Increasing rate of TCS for certain remittances

Section 206C(1G) provided for TCS on foreign remittance through Liberalised Remittance Scheme and on sale of overseas tour package. And the comparative analysis is presented as under:

11. Limiting the rollover benefit claimed under Section 54 and 54F: (AY 2024-25)

It is proposed to limit the exemption claimed under Section 54 and 54F in case of Capital Gains w.e. f AY 2024-25 to Rs. 10 Crores.

That is., if the cost of the new asset purchased is more than Rs.10 Crores, such cost shall be deemed to Rs.10 crores only.

12. Special provision for taxation of capital gains in case of Market Linked Debentures

A new Section 50AA has been inserted to provide that full value of consideration received or accruing as a result of transfer/redemption/ maturity of Market Linked Debentures as reduced by the cost of acquisition of such debentures and expenditure incurred wholly in connection with transfer or redemption of such debenture, as capital gains arising from the transfer of a short term capital asset.

13. Rationalisation of exempt income under Life Insurance Policies

Section 10(10D) provides exemption on any sum received under Life Insurance policy including bonus on such policy provided the premium payable for any of the previous year during the tenure of such policy does not exceed 10% of such sum assured.

Finance Act 2021 amends the above Clause 10D that any sum received under ULIP issued on or before 01.02.2021 shall not be exempt if the premium payable for any of the previous year during the tenure of such policy exceeds Rs.2.5 Lakhs. All other kinds of life insurance policies were eligible for exemption irrespective of amount of premium paid.

Finance Act 2022 inserts Sixth proviso to Clause 10D which provides exemption to the amount received including the bonus of such policies issued on or after 01.04.2023(Other than ULIP) provided the premium payable for any of the previous year during the tenure of such policies does not exceed Rs.5 Lakhs.

Finance Act 2022 inserts Seventh proviso to Clause 10D which provides that if the premium is payable by the person for more than 1 Life Insurance policy(Other than ULIP) issued on or after 01.04.2023( Other than ULIP), such amount will be exempt provided that AGGREGATE of premium payable for any of the previous year during the tenure of such policies does not exceed Rs.5 Lakhs.

However if the above sum is received on account of death of person, such amount is still exempt.

14. Under Section 10AA exemption in case of leave encashment has been increased from Rs.3 Lakhs to Rs .25 Lakhs

15. Relief from special provision for higher rate of TDS/TCS for non-filers of income tax returns

Section 206AB and 206CCA of the Income tax Act provides special provision for higher rate of TDS and TCS for non filers of income tax returns. These non filers are referred as specified persons.

Specified persons refers to the person who has not furnished the income tax return for which the due date of furnishing the same under section 139 has expired and the aggregated of tax deducted/ collected exceeds Rs.50,000 in the previous year.(excludes Non Resident)

This budget proposed to amend the section to exclude the persons from the definition of specified person, who are not required to furnish the return of income and who are notified by Central Government in the Official Gazette in this behalf.

In conclusion Budget 2023, has proposed several changes with respect to the Direct Tax Laws which will have the significant impact on the assesses.