The Budget 2023 presents a solid roadmap for India’s growth trajectory with guiding principles set around inclusive and sustained growth.
Formalisation of the economy, implementation of GST and digitalisation, have been major drivers of 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.
Though the existing capital gains regime has been found to be cumbersome 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 ECBs, 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.
The extension of the concessional tax regime for new manufacturing set-ups beyond March 31, 2024 was also expected; hopefully, this will be extended further.
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. 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.
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.
The writer is National Tax Leader, EY India. Views expressed are personal