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Union Budget Highlights 2023

Direct and Indirect tax updates as per 2023 budget

Union Finance Minister Nirmala Sitharaman has presented the last full-fledged Union Budget of Modi 2.0 Government before the next parliamentary elections in 2024. The key take away of the budget with respect to Direct and Indirect Taxes is as follows.

Personal Income Tax:

  • Income tax rebate for individuals increased from ₹5 lakhs to ₹7 lakhs in the new tax regime.
  • Tax slabs – number of slabs in new tax regime change to five with increase in the tax exemption limit to ₹3 lakh.
  • The new tax rates are:

Income SlabTax Rate
0 to ₹3 lakhsNIL
₹3 to 6 lakhs5%
₹6 to 9 Lakhs10%
₹9 to 12 Lakhs
₹12 to 15 Lakhs20%
Above 15 Lakhs30%

  • The new tax regime will now be the default tax regime effective from 1st Apr 2023, but citizens can still avail of benefits under old tax regime on opt-out basis
  • Standard deduction has been extended to new regime as well – Each salaried person with an income of ₹15.5 lakh or more will thus stand to benefit by ₹52,500.

  • Highest tax rate – Reduction in the highest surcharge rate from 37% to 25% in the new tax regime. This would result in reduction of the maximum tax rate to 39% from earlier 42.74%.
  • Tax exemption on leave encashment: The limit of ₹3 lakh for tax exemption on leave encashment on retirement of Government salaried employees to be increased to ₹25 lakh.

Other Direct Tax proposals:

  • Roll out of new Common ITR filing

  • The limit of Presumptive Income scheme has been increased 2 to 3 crore for eligible Business and 50 to 75 Lakhs for Professions, having cash receipt of less than 5% during the year.
  • Threshold of Rs 10,000 on TDS has been removed
  • Exempt tax on income of boards for housing, other activities
  • It is proposed to enable co-operatives to withdraw cash up to 3crore in a year without being subjected to TDS on such withdrawal.
  • Relief to start-ups in carrying forward and setting off of losses on change in shareholding, it is proposed to increase this period to 10 years from existing 7 years
  • Certain start-ups are eligible for some tax benefit if they are incorporated before 1st April, 2023. The period of incorporation of such eligible start-ups is proposed to be extended by one year to before 1st April, 2024.
  • It is proposed to allow a taxpayer to obtain certificate of deduction of tax at source to lower or nil rate on sums on which tax is required to be deducted under section 194LBA of the Act by Business Trusts
  • Tax on capital gains can be avoided by investing proceeds of such gains in residential property (Section 54/54F). This is proposed to be capped at 10crore.

Indirect Taxes

  • The number of basic customs duty rates on goods other than textile and agriculture has been reduced from 21 to 13.
  • Exemption has been provided on excise duty on GST-paid compressed bio gas. Also, customs duty on import of capital goods and machinery required for manufacture of lithium ion cells for batteries used in EVs has been exempted. This will promote Green mobility.
  • Relief has been provided in customs duty on import of certain parts like camera lens used in the manufacture of phones to promote manufacturing activity.
  • Basic customs duty on electric kitchen chimney is increased from 7.5% to 15%. BCD on heat coils used for above is reduced from 20% to 15%.
  • There is a reduction in BCD on seeds used in manufacture of Lab Grown Diamonds.
  • The import duty on silver dore, bars and articles has been increased to align them with that on gold and platinum.
  • The National Calamity Contingent duty on cigarettes has been revised upwards by about 16%.

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