On February 1st, 2023, the Honourable Finance Minister Mrs. Nirmala Sitharaman presented the Union Budget for 2023-24 for the 5th time in the Parliament. There were many eyes on this budget as expected as this was the last full year budget of Modi Government 2.0 and it is safe to say that it did not disappoint the public at large. Many significant announcements were part of this budget from the micro as well as macro growth perspectives and this budget is said to have laid the foundation for the Amrit Kaal of the country i.e., the groundwork for developed India in the next 25 years. The budget highlighted 7 key areas of priority for the government ‘Saptarishi’ with the vision for the Amrit Kaal. These priorities include Inclusive Development, Reaching the Last Mile, Infrastructure and Investment, Unleashing the Potential, Green Growth, Youth Power, and Financial Sector.The key highlights of this Budget 2023 are mentioned hereunder.Read More: Expectations from Budget 2023
Amendments in Income Tax
The Finance Minister talked about taxation in the last part of the budget. However, let's discuss it at the very start as this is the most awaited and crucial part for any average taxpayer.
There have been 5 significant changes in direct taxes in Budget 2023. These changes and ancillary highlights are given below.
To begin with, as expected in this budget, the new tax regime is given more push for acceptance by the government. The new tax regime is made the default regime but taxpayers will also be given the option to file their ITRs as per the old tax regime.
Rebate under section 87A has been extended to income up to Rs. 7,00,00 from the previous Rs. 5,00,000. This means that taxpayers having income up to Rs. 7,00,000 are not liable to pay any tax. This rebate is applicable to the old tax regime as well as the new tax regime.
The basic exemption limit under the new tax regime has been extended to Rs. 3,00,000 along with the reduction in the number of tax slabs from 6 to 5. The revised tax slabs as per Budget 2023 under the new tax regime are,
Understanding the difference in tax payable as per revised tax slabs under the new tax regime
As mentioned above, the budget has revised the tax slabs under the new tax regime in an attempt to make it more attractive to the taxpayers. Let us consider net tax payable at various levels to understand the difference in tax liability under each scenario.The above calculation is done after considering the standard deduction of Rs. 50,000 under A and C category and the same is not available under old slabs in the new tax regime. The final tax liability is after the addition of a health and education cess of 4% on the tax payable.Furthermore, taxpayers need to understand that the new tax regime does not provide the multiple benefits of deductions and exemptions which are still available in the old tax regime. Therefore, deductions like the 80C (Rs.1,50,000), 80D (Rs. 25,000 or Rs. 50,000), 80E, 80G, 80TTA, Section 24, etc. will significantly bring down the taxable income under the old tax regime ultimately reducing the tax liability.
Other revisions in Direct Tax
Standard deduction benefit that was earlier not applicable to the new tax regime is now applicable.
Investors can invest up to Rs. 30,00,000 in the Senior Citizen Savings Scheme as against the limit till now of Rs. 15,00,000.
The deposit limits for the Monthly Income Account Scheme have also been enhanced to Rs. 9,00,000 for single accounts and Rs. 15,00,000 for joint accounts.
Exemption on insurance policies limited up to Rs. 5,00,000 beyond which tax exemption is not applicable.
A common IT Form will be applicable for all taxpayers to bring ease of filing taxes and processing the same.
The highest surcharge rate has been reduced from 37% to 25% bringing the highest taxable rate in the country to 39%.
Introduction of a one-time small savings scheme for women, Mahila Samman Savings Certificate where women or girls can invest up to Rs. 2,00,000 for 2 years and get interest at the rate of 7.5% p.a.
TDS rate has been reduced from 30% to 20% on the taxable portion of EPF withdrawal in non-PAN cases.
Deduction from capital gains on investment in residential house under sections 54 and 54F has now been limited to Rs. 10,00,00,000 for better targeting of tax concessions and exemptions.
The limit for tax exemption on leave encashment on retirement for non-government salaried employees has been increased to Rs. 25,00,000.
Deduction from the family pension in the new tax regime has been extended up to Rs. 15,000.
Conversion of gold into the electronic gold receipt and vice versa will not be included under the purview of capital gain.
Income from Market Linked Debentures will be taxed from the Budget 2023.
Agniveer Fund has now been provided EEE status. Any payment received from the Agniveer Corpus Fund by the Agniveers enrolled in Agnipath Scheme, 2022 is proposed to be exempt from taxes. Such income will be allowed as a deduction in the computation of total income to the Agniveer on the contribution made by them or the Central Government to their Seva Nidhi account.
There have been a few changes in the indirect tax structure. The number of basic customs duty rates on goods, other than textiles and agriculture, reduced to 13 from 21. There have also been a few changes in the basic customs duty, cess, and surcharge on various commodities like toys, bicycles, automobiles, and naphtha. There has been a reduction in customs duty to boost domestic manufacturing. Some segments of products in this category include agricultural products, minerals, specified capital goods, IT and electronics, electronic appliances, and others. Some products that are going to get cheaper are mobile phones, TV panels, seeds in lab-grown diamonds, and shrimp feed. Some of the products that are going to get costlier are cigarettes, articles made by gold bars, fully imported luxury cars, and EVs as well as compounded rubber.
Amendments in Corporate Tax
There have been several changes in the corporate tax too which include extending the 15% corporate tax benefits to the new co-operatives that commence manufacturing till 31st March 2024. There has been an extension of the date of incorporation for another year for getting income tax benefits for start-ups. Apart from this, an increase in the benefit of the carry forward of losses on the change of shareholding of start-ups for 10 years from the existing 7 years of incorporation. The budget has also provided a higher limit of Rs. 3 crores for TDS on the cash withdrawal for co-operative societies. There has also been a provision of a higher limit of Rs. 2,00,000 per member for cash deposits to and loans in cash by Primary Agricultural Co-operative Societies (PACS) and Primary Co-operative Agriculture and Rural Development Banks (PCARDBs).
Amendments Allocation to Capex and other important sectors
This budget saw the highest allocation towards Capex which is to the tune of Rs. 10 lakh crores. This allocation is approximately 3.3% of the GDP and will be approximately 3 times the outlay that was made by the government in 2020. Railways also have been allocated a higher budget of Rs. 2.40 lakh crores. The government has also announced the providing 50-year interest-free loans to states that will help in continued infrastructure development. These loans are conditional that the capital investment and infrastructure be made by 2024. The government will also create an Urban Infrastructure Development Fund for the creation of urban infrastructure in Tier 2 and Tier 3 cities. The government will also use the funds for improving regional air connectivity by developing 50 additional airports, heliports, water aerodromes, and advanced landing grounds.Some of the other important announcements for capital allocation and infrastructure development under Budget 2023 are given hereunder.
The government aims to create Agri Accelerator Fund that will help in funding start-ups in the agricultural sector.
There will be setting up of better storage facilities for farmers where they can store their produce in a better manner.
Establishment of new 157 nursing colleges under the healthcare sector and allocation of Rs. 1,250 crores for the pharmaceutical industry.
Allocation of Rs. 15,000 crores towards Pradhan Mantri PVTG Development Mission and over Rs. 79,000 crores towards Pradhan Mantri Awas Yojana.
There has been an establishment of three Artificial Intelligence-based centers of excellence in educational institutions to develop AI-based solutions for agriculture, healthcare, and more.
The government will streamline the KYC process and remove unnecessary hurdles or repetition in the same.
There will be 100 5G labs set up for app-based development and the launch of Phase 3 of e-courts for better delivery of justice.
More teachers will be recruited under the Eklavya Model Residential Schools that serve approximately 3.5 lakh tribal students.
Budget 2023 also gave key insights into the total revenue and expenditure of the government in the coming year. The government also showed that it is on track with its fiscal deficit target to be below 4.5% by 2025-26. The fiscal deficit for 2023-24 is estimated to be 5.9% of the GDP which was also in line with the estimates as per many national and international reports. The government also announced that a fiscal deficit of 3.5% of GSDP will be allowed for States of which 0.5% is tied to Power sector reforms.
Focus on Green Growth
The government has announced many new initiatives with the target of green growth for the country. These initiatives include setting up 500 new ‘Waste to Wealth plants’ which will be established under the GOBARDhan Scheme. The government will also launch the PM-PRANAM to incentivise States and UTs to promote the usage of alternative fertilisers. The government has also planned to allocate ?35000 crore outlay for energy security, energy transition, and net zero objectives. Battery energy storage systems will also be promoted to steer the economy on the sustainable development path. Rs. 20,700 crore outlay will also be provided for renewable energy grid integration and evacuation from Ladakh.
The Union Budget 2023 was held well on many parameters and the key outcome of the budget is the financial and growth outlay that it has laid for the next 25 years of the country. The strategic allocation to infrastructure and the country’s vision to be energy efficient have been showcased strongly through this budget.We hope this analysis article was able to provide you with the key details of the budget 2023 and what it holds for the average taxpayer. Do let us know if you want more details on the same or have any questions related to the changes in taxation.Till Then happy reading!
Marisha Bhatt is a financial content writer @TrueData.
She writes with the sole aim of simplifying complex financial concepts and jargon while attempting to clarify technical and fundamental analysis concepts of the stock markets. The ultimate goal is to spread vital knowledge and benefit the maximum audience. Her Chartered Accountant background acts as the knowledge base to help clarify crucial concepts and create a sound investment portfolio.