On February 1, 2023, the Finance Minister of India, Ms. Nirmala Sitharaman, presented before Parliament, the last full-fledged Union Budget before the 2024 Lok Sabha elections in India. As a process, the Finance Bill is required to be approved by both the houses of Parliament and it stands enacted only after receiving the Presidential assent and publishing the same in the Official Gazette as the Finance Act.
The tax proposals listed below are applicable for Financial Year (FY) 2023-24 corresponding to Assessment Year (AY) 2024-25, unless specified otherwise.
Direct Tax (Income Tax)
Tax Rates
Individuals:
- The Indian Income-tax Act provides for two tax regimes for taxation of individuals – one provides for concessional slabs / rates without allowing certain exemptions /deductions (tax regime without deductions or optional regime introduced from FY 2020-21) and the other has higher tax rates, but it allows a number of deductions (tax regime with deductions). The proposed Budget will make the tax regime without deductions as a default tax regime, applicable with an option to the taxpayer to opt for other tax regimes i.e., a tax regime with deductions.
The Budget proposes to amend tax rates and income slabs applicable to tax regimes (without deductions) as follows:
Income slabs/tax rates for individuals below the age of 60 years:
| FY 2023-24 | FY 2022-23 | ||
| Annual Taxable Income(In INR) | Income Tax Rate | Annual Taxable Income(In INR) | Income Tax Rate |
| Up to 300,000 | Nil | Up to 250,000 | 0% |
| 300,001 to 600,000 | 5% | 250,001 to 500,000 | 5% |
| 600,001 to 900,000 | 10% | 500,001 to 750,000 | 10% |
| 900,001 to 1,200,000 | 15% | 750,001 to 1,000,000 | 15% |
| 1,200,001 to 1,500,000 | 20% | 1,000,001 to 1,250,000 | 20% |
| 1,250,001 to 1,500,000 | 25% | ||
| Above 1,500,000 | 30% | Above 1,500,000 | 30% |
Tax rates and income slabs remain unchanged for tax regime with deductions, which are as follows for individuals below the age of 60 years:
| FY 2023-24 and FY 2022-23 | |
| Annual Taxable Income(In INR) | Income Tax Rate |
| Up to 250,000 | 0% |
| 250,001 to 500,000 | 5% |
| 500,001 to 1,000,000 | 20% |
| Above 1,000,000 | 30% |
- While computing total income under the tax regime without deductions, an individual earning income from salary or pension would be eligible to claim standard deductions up to INR 50,000. Earlier such deduction was not allowable when taxpayer opted for regime without deductions.
- Further, the Income-tax Act provides for a rebate whereby taxpayers are not required to pay any taxes if their total income is INR 500,000 or less. The proposal will seek to amend the provisions relating to this tax rebate whereby for FY 2023-24 if the taxpayer has opted for the tax regime without deductions, no tax would be payable if his income does not exceed INR 700,000. However, if the taxpayers opt for tax regime with deductions, the old provisions restricting this benefit for income up to INR 500,000 would apply.
- The tax computed as above is to be further increased by surcharge at rates mentioned below and a health and education cess @ 4%.
- Income (all kinds of income) exceeding INR 5 million but not exceeding INR 10 million – 10%
- Income (all kinds of income) exceeding INR 10 million but not exceeding INR 20 million – 15%
- Income (excluding income from dividend and specified capital gains) exceeding INR 20 million but not exceeding INR 50 million – 25%
- Income (excluding income from dividends and specified capital gains) exceeding INR 50 million – 37%. Where the taxpayer opts for the tax regime (without deductions), the surcharge applicable will be restricted to 25%.
- In case of the last two situations mentioned above, surcharge at 15% is applicable on income from specified capital gains and dividend.
Illustrations of tax liability calculated at different income levels and under different options are given in annexure A.
Companies:
There is no change in the corporate income tax rates (CIT). The key CIT rates applicable to Indian companies are as follows:
| Category/ Condition for FY 2023-24 | Income Tax Rate (Excluding surcharge and cess) |
| Domestic manufacturing companies incorporated on or after October 1, 2019, and which commence manufacturing on or before March 31, 2024, and have opted for special/ optional tax regime | 15% |
| Companies opting for special/ optional tax regime where exemptions/deductions cannot be claimed | 22% |
| Company with total turnover or gross receipt in the FY 2021-22 not exceeding INR 4 billion | 25% |
| Any other domestic company | 30% |
The above tax is further increased by surcharge at rates mentioned below and a health and education cess @ 4%
- Companies with taxable income exceeding INR 10 million but less than INR 100 million – 7%
- Companies with taxable income exceeding INR 100 million – 12%
- Company opting for special / optional tax regime (companies subject to tax rate of 15% or 22% as above) as mentioned above – 10%.
Other Key Changes:
- The tax exemption limit of INR 300,000 for leave encashment on separation (i.e. retirement, resignation, other) of non-government salaried employees is proposed to be increased to INR 2,500,000.
- The period provided for incorporation of eligible start-ups for claiming tax exemption is extended from March 31, 2023, to March 31, 2024. The eligible start up can claim 100% tax exemption for three consecutive assessment years out of 10 years beginning from the year of incorporation, at the option of the taxpayer, subject to certain conditions. Further, losses can be set off up to ten years as against earlier provision of seven years.
- The proposal will prescribe a time-limit of six months (or period as extended by competent authority) for Special Economic Zone (SEZ) unit claiming tax holiday to bring in India the export proceeds in convertible foreign exchange.
- Indian Income-tax law allows deduction for certain expense only once actual payment is made and not on accrual basis. This provision is proposed to be made applicable to any expenditure involving payment to Micro or Small Enterprises, provided, the payment is made within the given timelines under the Micro, Small and Medium Enterprises Development Act.
- It is clarified that scope of business income includes value of any benefit or perquisite provided in cash or in kind arising from the business.
- Where a private/ closely held company receives any consideration for issue of shares exceeding the face value of such shares, the excess consideration (calculated as per given formulae) is taxable as other income. This measure was introduced in order to prevent generation and circulation of unaccounted money through share premium. The scope is now proposed to be extended to non-resident investors also.
- Deduction of interest expense is restricted in respect of any debt issued by a non-resident, being an associated enterprise of the borrower, which can be an Indian company, or a permanent establishment (PE) of a foreign company in India. The interest deductible is restricted to 30% of earnings before interest, taxes, depreciation, and amortisation (EBITDA), where interest or expenses of similar nature exceeds specified threshold. This also includes certain debt issued by a lender which is not an associated enterprise of the borrower. It is now proposed to exclude borrowers (i.e., Indian company, or a PE of a foreign company in India) engaged in the business of banking or insurance and certain classes of non-banking financial companies (NBFC) as specified, from the scope of the said provisions.
- The time limit for completion of an audit (i.e., assessment by the tax authorities) is proposed to be extended to twelve months from the end of the assessment year in which the income was first assessable, effective from the assessment year commencing on or after April 1, 2022. Further, the Bill proposes to empower the tax officers to direct the taxpayer to get inventory valuation done by a cost accountant. In such cases, time limit for completion of assessment will be extended by the period of inventory valuation.
- In case of transfer pricing audits initiated by tax authorities, they can call from the taxpayer transfer pricing report or any other document or information to support the arm’s length price. Earlier such information or document was required to be submitted within 30 days of such request which can be further extended by another 30 days. The amendment proposes to reduce the time-limit for furnishing of such documents/information to 10 days from the request. The time-limit can be extended on taxpayer’s request for further period up to 30 days.
- Last year, Finance Act 2022 introduced withholding tax obligation on payment made in relation to transfer of virtual digital asset (VDA) at the rate of 1% of the consideration, exceeding specified monetary threshold. Since the consideration for transfer of VDA can be in exchange of another VDA, i.e., in kind, the person responsible for paying the consideration is required to ensure that the applicable tax has been paid. Now, penalty and prosecution provisions are also proposed to be enabled for failure to make/ ensure tax payment on such consideration is received in kind.
Indirect Taxes
Key changes
- To encourage greener mobility and value addition, custom duties rates are calibrated to give impetus to various industry sectors, such as:
- Basic custom duty exemption in respect of import of capital goods and machinery required for manufacturing lithium-ion batteries extended till March 31, 2024, to give a boost to electric vehicle (EV) sector.
- Exemption from basic customs duty (previously, subject to custom duty of 2.5%) given to the import of camera lens and its parts used in mobile phones.
- Reduction in basic customs duty from 5% to 2.5% for certain parts of television (TV) panels in order to boost the manufacturing of TV sets in India.
- The budget also proposed an increase in the minimum threshold for launching prosecution under the GST law from INR 10 million to INR 20 million, subject to certain exceptions.
Annexure A.
Computation of tax liability at different levels of income under different tax regimes:
| Income (INR 1 Million) | Income ( INR 2.5 Million) | Income ( INR 7.5 Million) | Income (INR 15 Million) | Income (INR 25 Million) | Income (INR 55 Million) | ||
| Gross total income (Note 1) | 10,00,000 | 25,00,000 | 75,00,000 | 1,50,00,000 | 2,50,00,000 | 5,50,00,000 | |
| Allowable standard deduction | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | 50,000 | |
| Professional tax or tax on employment | 2,500 | 2,500 | 2,500 | 2,500 | 2,500 | 2,500 | |
| Other deductions (Note 2) | 3,50,000 | 3,50,000 | 3,50,000 | 3,50,000 | 3,50,000 | 3,50,000 | |
| (i) | Tax Regime with deductions for FY 2022-23 & FY 2023-24 (i.e. no change) | ||||||
| Taxable income | 5,97,500 | 20,97,500 | 70,97,500 | 1,45,97,500 | 2,45,97,500 | 5,45,97,500 | |
| Tax payable | 32,000 | 4,41,750 | 19,41,750 | 41,91,750 | 71,91,750 | 1,61,91,750 | |
| Surcharge | – | – | 1,94,175 | 6,28,763 | 17,97,938 | 59,90,948 | |
| Cess | 1,280 | 17,670 | 85,437 | 1,92,821 | 3,59,588 | 8,87,308 | |
| Total liability | 33,280 | 4,59,420 | 22,21,362 | 50,13,333 | 93,49,275 | 2,30,70,005 | |
| (ii) | Tax Regime without deduction from FY 2023-24 onwards | ||||||
Taxable income (Standard deduction of INR 50,000 available from FY 2023-24) | 9,50,000 | 24,50,000 | 74,50,000 | 1,49,50,000 | 2,49,50,000 | 5,49,50,000 | |
| Tax payable | 52,500 | 4,35,000 | 19,35,000 | 41,85,000 | 71,85,000 | 1,61,85,000 | |
| Surcharge | – | 1,93,500 | 6,27,750 | 17,96,250 | 40,46,250 | ||
| Cess | 2,100 | 17,400 | 85,140 | 1,92,510 | 3,59,250 | 8,09,250 | |
| Total liability | 54,600 | 4,52,400 | 22,13,640 | 50,05,260 | 93,40,500 | 2,10,40,500 | |
| Income (INR 1 Million) | Income ( INR 2.5 million) | Income ( INR 7.5 million) | Income (INR 15 Million) | Income (INR 25 Million) | Income (INR 55 Million) | ||
| (iii) | Tax Regime (without deduction) for FY 2022-23 | ||||||
| Taxable income | 10,00,000 | 25,00,000 | 75,00,000 | 1,50,00,000 | 2,50,00,000 | 5,50,00,000 | |
| Tax payable | 75,000 | 4,87,500 | 19,87,500 | 42,37,500 | 72,37,500 | 1,62,37,500 | |
| Surcharge | – | 1,98,750 | 6,35,625 | 18,09,375 | 60,07,875 | ||
| Cess | 3,000 | 19,500 | 87,450 | 1,94,925 | 3,61,875 | 8,89,815 | |
| Total liability | 78,000 | 5,07,000 | 22,73,700 | 50,68,050 | 94,08,750 | 2,31,35,190 | |
| Final tax liability under beneficial tax regime at given income levels. | |||||||
| FY 2023-24 [lower of tax liability as per (i) or (ii)] | 33,280 | 4,52,400 | 22,13,640 | 50,05,260 | 93,40,500 | 2,10,40,500 | |
| FY 2022-23 [lower of tax liability as per (i) or (iii)] | 33,280 | 4,59,420 | 22,21,362 | 50,13,333 | 93,49,275 | 2,30,70,005 | |
| Savings/ (Additional outgo) as compared to FY 22-23 | – | 7,020 | 7,722 | 8,073 | 8,775 | 20,29,505 |
Notes/Assumption:
- Gross income includes salary which is assumed to be more than INR 50,000. Income presumed to not include dividends and capital gains.
- Other deductions assumed for calculation are deduction u/s 80C (Provident fund, life insurance premium, etc) of INR 150,000 and interest on housing loan of INR 200,000 for self-occupied house.
- Calculation is for a person below the age of 60 years.
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