Nil tax even for income a tad above Rs 7 lakh

In a move that could incentivise more taxpayers to move to the concessional income tax regime, the finance ministry has introduced a marginal relief for those earning just a little more than Rs 7 lakh a year. This would ensure that their tax burden won’t include paying any tax, like others below the Rs 7-lakh income threshold.

The change has been introduced through the amendments to the Finance Bill, 2023 that was passed by the Lok Sabha on Friday. Individual taxpayers having borderline income will get a deduction of income tax payable in excess of the differential income above Rs 7 lakh.

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Experts pointed out that currently a person who has income up to Rs 7 lakh in a year does not have to pay tax under the concessional income tax regime. But if the income is even slightly above this limit at about Rs 7,00,100, the tax incidence is as high as Rs 25,010.

The proposal would benefit those with income up to Rs 7.27 lakh per year, said Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP.

To make the concessional income tax regime more attractive, finance minister Nirmala Sitharaman had in the Union Budget 2023-24 proposed to increase the rebate limit to Rs 7 lakh in the new tax regime. As a result, individuals with income up to this amount would not have to pay tax.

However, with online gaming maintaining its popularity, the Finance Bill has also advanced the provision for tax deduction at source to April 1, 2023 from the earlier proposed date of July 1, 2023. Further, the TDS on online gaming will also be deducted at the double rate, in case of non-compliance in return filing by the concerned deductee, where the TDS amount in the past year was more than Rs 50,000.

The Union Budget presented in February had proposed to insert a new Section 194BA in the Income Tax Act, effective July 1, 2023, to provide for deduction of tax at source on net winnings in the user account at the end of the financial year. Obligation is cast upon the payer of winnings to deduct and deposit taxes on net winning at a 30% rate.

Jhunjhunwala noted that the preponement of the date appears to be a deviation from the norm and in an immediate reaction, could leave taxpayers in a state of disorder with very little time to make the necessary arrangements for achieving compliance. “However, taxpayers could breathe a sigh of relief as taxes are required to be deducted on the net winnings at the end of the fiscal year unless the accounts holder withdraws the winnings earlier,” he said.

Amit Maheshwari, tax partner, AKM Global said the TDS provisions related to non-filers of income-tax return has been extended to the TDS on winnings from online games, which will help widen the tax base and improving the transparency in tax collections.

Also read: New Tax Regime rule change: Marginal income over Rs 7 lakh may become tax-free; 5 points

The amendments to the Finance Bill also propose to restrict the tax collected at source rate to 20% in case of non-filers of income tax returns and for those who do not have Permanent Account Numbers.

“Under Section 206CC, in absence of PAN, TCS is collectible at rate of 5% or twice the rate specified in the relevant provision. It has been proposed to restrict the higher rate of TCS collectible at 20%,” said Ved Jain, former president, Institute of Chartered Accountants of India. A similar provision has also been proposed for TCS for non filers of return. The amendments are proposed to be effective from July 1, 2023.