A Union Budget with a significant increase in capital outlays with fiscal deficit being under the target is a difficult task and can be termed a great Budget — exactly what was presented Wednesday. Several amendments have been proposed to continue reforms in the direct tax system to expand the tax base and continue buoyancy in revenues.
In terms of buoyancy in tax revenues, a significant increase has been seen in tax collections as compared to the previous year. Direct tax collections have increased from `7 trillion in FY22 to `8.7 trillion in FY23. Further, GST collection has risen from Rs 9.4 trillion to Rs 11.9 trillion during the same period.
A couple of years ago, the FM introduced an alternate tax regime for individual tax payers but not many opted for it. To incentivise the shift, the ‘new regime’ would now be the default regime, with significant sops to individual tax payers who choose the new tax regime.
To promote startups, the period of incorporation of eligible startups to be able to claim tax holidays has been extended by a year. Also, the time period for loss of eligible startups to be considered where there is a significant change in shareholding is proposed to be increased from seven to 10 years. A significant and important amendment is with respect to taxation of income distributed by REITs/InvITs to unit holders. REITs/InvITs are mandatorily required to distribute their cash surplus up to certain limits as per Sebi regulations on a quarterly basis. The distributions generally consist of interest, dividend or repayment of debt. The law provides for a pass-through status or a single stage taxation of the receipts. However, repayment of debt was not taxable in the hands of either the unit holders or the trust, which has now been addressed. With effect from April 1, 2023, all distribution by a REIT/InvIT representing repayment of debt is taxable as ‘other income’ in the hands of the unit holders.
The proposed withholding tax on online gaming should arm the government with sufficient data to expand the tax base. Another aspect that has been bothering the government and taxpayers alike is pendency of tax cases, for which a new authority for disposal of appeals involving a small amount of disputed demand is proposed.
Several taxpayers were facing undue burden with respect to claim of TDS credit owing to TDS mismatch, since the corresponding income was offered to tax by taxpayers in earlier years, but TDS is deducted much later when actual payment is being made. In order to remove this difficulty, the taxpayer can now claim this TDS credit by submitting an application to the assessing officer.
This being the government’s last full Budget before the general elections has set the tone for completion of the term on a high. Tax relief for individual taxpayers is not linked or conditional upon making investments, but puts additional disposable income in the hands of the middle class. This, together with the significantly increased outlay, should address the supply side issue and result in growth.
(With Ajay Rotti, partner, Dhruva Advisors)