By Gaurav Karnik
With India being recognised as a ‘Bright star’ in its 75th year of independence, Budget 2023 is focused on developing a technology-driven and knowledge-based economy. Relief to cooperatives, startups, and middle-class salaried persons along with the focus on expeditious resolution of tax disputes are some of the key highlights of the Budget.
Major reliefs for micro, small and medium enterprises (MSMEs) and cooperative societies in terms of enhanced deduction limits, extended incorporation date for cooperatives engaged in the manufacturing sector till 31 March 2024 for being eligible for the 15% corporate tax rate and higher TDS limit for cash withdrawal have been brought in. Further, payments to MSMEs are to be allowed as a tax deduction only on a payment basis. In a boost to the start-ups, the time period for carry forward and set off of losses has been increased from seven years to 10 years. Further, the period of incorporation of startup for claiming tax holiday has been extended to March 31, 2024.
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From an incentive perspective, IFSC centres have also been incentivised by allowing exemption on the distribution of income. The scope of obtaining a lower withholding certificate has been extended to non-residents receiving income from business trusts. The compliance burden for taxpayers has been reduced by removing the requirement of approval from the Board for claiming deduction of preliminary expenses
Several rationalisation measures for tax deducted and collected at source have also been introduced. In line with the increase in online gaming, tax withholding on winnings from online games has been introduced. In addition, several measures to widen the tax base such as the removal of tax withholding exemption on interest paid to residents on listed debentures, increase in tax collection at source rates for overseas tour packages and other remittances under the LRS scheme (other than education & medical treatment) and extension of penalty & prosecution measures to tax withholding default in case of payments in kind have also been introduced. As a relief to non-resident taxpayers, treaty benefit has been extended while applying a withholding rate for income earned from certain mutual fund units. Further, tax withholding credit for income disclosed in the past year(s) has now been facilitated. A higher tax withholding rate for non-filers of return introduced in the past has now been clarified that such higher TDS shall not apply to cases where the payee is not required to furnish income tax return.
Budget 2023 has also facilitated expeditious settlement of litigation. A new authority with the rank of Joint Commissioner/ Additional Commissioner will be introduced to expedite the disposal of certain appeals. The extension has also been provided to Interim Board for Settlements for the rectification of orders. In addition to this, the time limit for completion of assessment & reassessments has also been revised to 12 months for both regular and updated tax returns. To reduce litigation, clarification has been brought by stating that cost of acquisition of certain intangible assets to be nil. In order to ensure compliance, measures such as the introduction of the penalty of Rs 5,000 for inaccurate reporting in statements of financial transactions have also been introduced.
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Overall, Budget 2023 continues the stated intention of the government to have a stable tax regime and reduction in litigation and at the same time ensure that the economy is on a growth trajectory.
(The writer is tax partner, EY India. Views expressed are personal.)