MAJOR BUDGET UPDATES ON DIRECT AND INDIRECT TAXES: AT A GLANCE

[Dr. Sanjiv Agarwal]

Union Budget 2023-24 has been presented by the Finance Minister in the Parliament. It has been built on the foundation in place and blueprint for India@100. It states that our current year’s economic growth is estimated to be at 7 per cent. It is notable that this is the highest among all the major economies. This is in spite of the massive slowdown globally caused by Covid-19 and a war. The Indian economy is therefore, on the right track, and despite times of challenges, it is heading towards a bright future. Indian economy has become a lot more formalised as reflected in the EPFO membership more than doubling to 27 crore, and 7,400 crore digital payments of Rs. 126 lakh crore through UPI in 2022. 

Its vision for the Amrit Kaal includes technology-driven and knowledge-based economy with strong public finances, and a robust financial sector. The economic agenda for achieving this vision focuses on three things: first, facilitating ample opportunities for citizens, especially the youth, to fulfil their aspirations; second, providing strong impetus to growth and job creation; and third, strengthening macro-economic stability. 

The Budget adopts the following seven priorities. They complement each other and act as the ‘Saptarishi’- Inclusive Development, Reaching the Last Mile, Infrastructure and Investment, Unleashing the Potential, Green Growth, Youth Power and Financial Sector.

The direct and indirect tax proposals are aimed at simplification and rationalization in this last full budget before general elections in 2024. However, many expectations have not been met in the Budget, particularly in relation to personal taxation, exemptions etc.

A simplified tax structure with fewer tax rates helps in reducing compliance burden and improving tax administration. The number of basic customs duty rates on goods, other than textiles and agriculture have been reduced, from 21 to 13. As a result, there are some minor changes in the basic custom duties, cesses and surcharges on some items including toys, bicycles, automobiles and naphtha etc.

Nothing major has been done in GST as it requires recommendations of the GST Council while customs duties have been rationalized. Provisions in relation to GST on input tax credit, returns etc have been amended. Information sharing among other departments has also been provided for.

Direct tax proposals aim to maintain continuity and stability of taxation, further simplify and rationalise various provisions to reduce the compliance burden, promote the entrepreneurial spirit and provide tax relief to citizens. Tax rate slabs have been rationalised under personal income tax.

Highlights of Union Budget 2023-24

1.  Direct Taxes

• Simplification in personal income tax
• Reduction in compliance burden, promote entrepreneurial spirit and tax relief to citizens
• Income tax limit for tax rebate of income tax increased from Rs. 5 lakh to Rs. 7 lakh  on new regime
• Highest surcharge, rate on income above Rs. 5 crore to be reduced from 37% to 25% under new regime
• Extending benefit of standard deduction to new tax regime for salaried class and pensioners
• Increasing tax exemption limit to Rs. 25 lakh on leave encashment on retirement for non-government salaried employees
• Enhanced limits for micro enterprises and professionals to avail benefits of presumptive taxation ; 95% of receipts to be non cash
• Deduction on payments made to MSMEs to be allowed only when payment is actually made
• Extending 15% corporate tax benefits to new cooperatives, commencing manufacturing till 31st March,2024
• Extension of period of tax benefits to funds relocating to IFSC, GIFT City till 31.03.2025;
• Decriminalisation under section 276A of the Income Tax Act;
• Allowing carry forward of losses on strategic disinvestment including that of IDBI Bank;
• 20% TCS on foreign remittances / payments / investments
• E-gaming wins to attract 30% TDS
• Tax holding of 100% extended by one year for start-ups incorporated till March, 2024 can now enjoy this exemption.
• Providing EEE status to Agniveer Fund.
• Income tax contributes 15% and corporate tax 15% to total revenue
• More personnel to be deputed for reducing pendency of appeals

2. Indirect Taxes (including GST)

• Simplification in indirect taxes to deliver higher exports, higher domestic manufacturing more value addition in the economy, green energy and mobility
• Extension of exemption for one more year in BCD exemption
• Rationalization in customs duty
• Decriminalization of offences under GST
• GST contributes 17% and Customs 4% to total revenue
• Sections of CGST Act, 2017 amended / substituted :

Section	Relating to
10	Composition levy
16	Eligibility and conditions for taking input tax credit
17	Apportionment of credit and blocked credits
23	Persons not liable for registration (substituted)
37	Furnishing details of outward supplies
39	Furnishing of returns
44	Annual return
52	Collection of tax at source
54	Refund of tax
56	Interest on delayed refunds
122	Penalty for certain offences
132	Punishment for certain offences
138	Compounding of offences
158A (new)	Consent based sharing of information furnished by taxpayers
142	Retrospective exemption w.e.f. 01.07.2017 to certain activities and transaction in Schedule-III to CGST Act, 2017 but without refund

• Sections of IGST Act, 2017:

Section	Relating to
2(16)	Definition of non taxable online recipient
12	Place of supply of services where location of supplier and recipient is in India

3. Major Budget proposals in relation to Goods and Services Tax

• Removal of the restriction imposed on registered persons engaged in supplying goods through electronic commerce operators from opting to pay tax under the Composition Levy.
• Second and third provisos to sub-section (2) of section 16 of the CGST Act are being amended to align the said sub-section with the return filing system provided in the said Act.
• Restriction on availment of input tax credit in respect of certain transactions specified in para 8(a) of Schedule III of the said Act, by including the value of such transactions in the value of exempt supply.
• Input tax credit shall not be available in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013.
• Retrospective amendment from 01st July, 2017, so as to provide that persons for compulsory registration in terms of sub section (1) of section and section 22 of the Act need not register if exempt under sub section (1) of section 23.
• Time limit upto which GSTR-1/GSTR-3B/Annual return/GSTR-8 for a tax period can be furnished by a registered person is three years from the due date. Further, it also seeks to provide an enabling provision for extension of the said time limit, subject to certain conditions and restrictions, for a registered person or a class of registered persons.
• Sub-section (6) of section 54 of the CGST Act is being amended so as to remove the reference to the provisionally accepted input tax credit to align the same with the present scheme of availment of self assessed input tax credit as per sub-section (1) of section 41 of the said Act.
• Section 56 of the CGST Act is being amended so as to provide for an enabling provision to prescribe manner of computation of period of delay for calculation of interest on delayed refunds.
• Penal provisions inserted amounting to Rs. 10,000 or amount of tax evasion, whichever is higher, applicable to Electronic Commerce Operators in case of contravention of provisions relating to supplies of goods made through them by unregistered persons or composition taxpayers.
• Monetary threshold for launching prosecution for the offences increased from one hundred lakh rupees to two hundred lakh rupees, except for the offences related to issuance of invoices without supply of goods or services or both.
• Data sharing between income tax and GST Departments on an automatic and regular basis.
• Schedule III of the CGST Act is being amended to give retrospective applicability to Para 7, 8 (a) and 8 (b) of the said Schedule, with effect from 01st July, 2017, so as to treat the activities/ transactions mentioned in the said paragraphs as neither supply of goods nor supply of services. It is also being clarified that where the tax has already been paid in respect of such transactions/ activities during the period from 01st July, 2017 to 31st January, 2019, no refund of such tax paid shall be available.
• Amendment in definition of OIDAR and non-taxable online recipient.