Emerging out of the pandemic and now faced with the global economy facing a slowdown, the Finance Minister has had to contend with setting in place measures to rein in the fiscal deficit, whilst focusing on growth drivers on the domestic front to fuel the economy. India has shown leading growth across the major global economies this fiscal and Budget 2023 presents a solid roadmap for this continued trajectory with guiding principles set around inclusive and sustained growth.
India’s journey towards formalisation of its economy, aided by the successful implementation of GST and digitalisation of economic transactions, has been a major contributing factor to the increase in tax buoyancy — both indirect tax and GST collections.
Personal income tax
Coming to the Budget proposals, on the personal tax side while the middle class will have some cheer, it comes with riders. The new tax regime announced in 2020 is now the default tax regime, with a clear intent to reduce exemptions/deductions while rationalising tax rates. The new slab rates, increase in rebate thresholds and lowering of surcharge for HNIs are available only under the new regime. Standard deductions and deductions for family pensions are now extended to the new regime. However, taxpayers can continue to opt for the old regime.
Tax exemption on reinvestment of capital gains into residential property will be capped at ₹10 crore and life insurance policies (other than ULIPs) issued after April 1, 2023, where annual premium exceeds ₹5 lakh will now not be eligible for exemption and will be taxable as income from other sources.
The existing capital gains regime has been found to be cumbersome due to differing rates of taxation and holding period for different asset classes and simplification of the regime was expected. However, the government has chosen not to make any changes at this point. Income from market-linked debentures, irrespective of the period of holding, is now proposed to be taxed as short-term capital gains.
Presently, there is a concessional tax rate of 5 per cent on interest on external commercial borrowings, rupee-denominated bonds and debt investments by FPIs, and it was expected that the sunset date would be extended beyond the present June 30, 2023. But this has not happened.
Another item that was expected given the impetus on the manufacturing sector was the extension of the concessional tax regime for new manufacturing set-ups beyond March 31, 2024; hopefully, this will be extended further.
The start-up ecosystem has been part of several past Budgets and this year is no different. The period of incorporation of eligible start-ups to claim the tax deduction is now extended by a year to April 1, 2024. The period for carry forward of eligible losses of start-ups has been extended to 10 years from the erstwhile seven years. Private companies, including start-ups, while raising capital from foreign investors will also now need to be mindful of the fair value to avoid tax implications.
GIFT IFSC (International Financial Services Centre) is a key focal area with a proposal for setting up a single window IT system for registration and approval under the IFSCA regime, which will certainly facilitate ease in doing business here.
From an indirect taxes standpoint, duty changes were made to encourage exports and green energy and boost domestic manufacturing. Basic Customs duty has been reduced for certain products used for manufacture in India, subject to import of goods at concessional rate of duty conditions, to solidify India’s presence in the global supply chain.
The Finance Minister has done a commendable job in presenting a balanced Budget keeping in mind fiscal prudence whilst focusing on various areas that needed an impetus for growth. This sets us firmly on the right path for India@100, a befitting Budget to usher India into Amrit Kaal.
The writer is National Tax Leader, EY India. Views expressed are personal
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