Union Budget 2023Impact On Individuals

1. An Introduction The Union Finance Minister in her speech whilst presenting the Union Budget 2023 constantly referred to the phrase “Amrit Kaal”, a term that was first used by the Hon’ble Prime Minister in 2021 during the 75th Independence Day Celebrations. For the unversed, the term “Amrit Kaal” originates from Vedic astrology and is known as the critical time when the gates of greater pleasure open for the inhuman, angels, and human beings. To start any new work, Amrit Kaal is considered the most auspicious time.

In this article, I intend to delve into some of the key personnel tax-related changes that have been proposed in the Union Budget 2023. I would leave it to the reader to determine whether the changes are a reflection of the “Amrit Kaal” or the “Rahu Kaal”.

2. Key changes

2.1 Increase in basic exemption limit

The basic exemption limit has been increased from INR 250,000 to INR 300,000 under Section 115BAC of the Income-tax Act, 1961 (“the Act”), which governs the new tax regime. The new tax regime does not grant by deductions whilst boasting of lower tax rates. The proposed slab rates in the new tax regime are as follows:

Viewed in the above context, one would also need to consider the rates applicable under the old tax regime in order to separate the trees from the wood. For ease of reference, a comparative chart has been provided below: in order to optimise his tax outflows. To illustrate, in the case of an individual having a total income in excess of INR 15 Lakhs, an individual would benefit under the new tax regime if the available deductions (other than the standard deduction) are less than INR 375,000.

2.2 Increase in the limit of rebate under Section 87A of the Act

As evident, in terms of tax slab rates, the new regime under Section 115BAC appears to be more favourable. However, the crucial factor of non-availability of various specified deductions like Sec- tions 80C, 80CCC, 80CCD, 80D, 80TA/24(b), etc. in the new regime, is also required to be considered and taken into account. This would ensure in a taxpayer making a wellinformed and pragmatic decision,

The rebate eligible under section 87A of the Act has been increased from INR 500,000 to INR 700,000 in the new tax regime. Consequently, individuals having a total income of upto INR 700,000 will not be required to pay any income tax. However, it may be noted that the said rebate will NOT be available if the total income exceeds INR 700,000, even by one rupee. The new tax regime now also provides a deduction under Section 16 of the Act towards standard deduction and a deduction in respect of family pension under

Section 57 of the Act.

2.3 Presumptive taxation –Increase in limits

As for the presumptive income scheme for small professionals and small businesses, the Finance Bill 2023 proposes to amend the provision laying down the presumptive income scheme to provide that as against the present limit of Rs. 50 Lakhs, the limit of gross receipts up to Rs. 75 Lakhs would be applicable. Similarly for small businesses, the threshold limit has been increased from INR 2 crores to INR 3 crores. This change is indeed welcome and would provide succour to professionals and small businesses.

2.4 Measures to reduce litigation, speedy justice and aid to MSME

The Union Budget 2023 has proposed a new avatar of Vivad Se Vishwas, which would provide succour to MSMEs. In this regard, the Budget proposes that 95 percent of the amount forfeited during the cov- id period whilst executing contracts with the Government would be returned to MSMEs. The Government has also sought to introduce a voluntary settlement scheme for easier and faster settlement of contractual disputes with Government and Governmental undertakings.

Further, in order to provide timely payment to MSMEs, the Government has introduced a provision whereby a deduction in respect of any sum payable to a micro and small enterprise shall be allowed as a deduction only on actual payment. It may be pertinent to note that a “micro enterprise” has been defined in the Micro, Small and Medium Enterprises Development Act, 2006 to mean an enterprise where the investment in plant and machinery does not exceed INR 1 crore and the turnover does not exceed INR 5 crore. Further, an enterprise would qualify as a “small enterprise” if the investment in plant and machinery does not exceed INR 10 crore and the turnover does not exceed INR 50 crore.

Further, in order to expedite the process of disposal of appeals, the Government proposes to deploy around 100 Joint Commissioners for disposing of small appeals. This would hopefully reduce the load and the pendency of appeals before the Commissioner (Appeals).

3. Conclusion

Union Budget 2023 in my view is a mixed bag. One would hope that the Government executes its proposals and the results are strictly monitored. For instance, the Government as part of its initiative of ensuring the effective administration of justice has now unveiled Phase III of the E-Courts Project with a planned outlay of INR 7,000 crores. One would hope that every rupee spent on this score is strictly monitored and a social audit was undertaken to check the efficacy of the outlay. At the end, the money belongs to the citizen, which should be utilized for his welfare and not a chosen few.

Under the convention, it deserves to be noted that the right to tax income from immoveable property is given to the state of source. This is on account of the fact that there is a very close economic connection between the source of income and the state of source. It deserves mention that the situs, i.e., where the immovable property is situated takes precedence over any of the rules governing Permanent Establishment. The UN Model follows a similar view akin to the OECD Model. Under the US Model Convention, Article 6(5), a resident has an option by election to be taxed on a net basis, as in case of permanent establish- ment on income from real property situated in other State.

It would also be relevant to note that income from agriculture and forestry is also taxed as income from immoveable property. The term income agriculture and forestry include not only income that an enterprise engaged in agriculture or forestry activities derives from selling its agricultural produce but also income that is integral to carry out of agriculture or forestry activities – for instance, income from permits associated with rights integral to carrying out of agriculture or forestry activities.

The OECD Model Convention states that the right to tax of the State of source has a priority as contained in Article 6. Consequently, income indirectly derived from immoveable property would also fall within the confines of Article 6. The convention states that where the said income is part of a permanent establishment, the same would be taxed as income of the concerned business enterprise.

The above-principles would be a useful tool in determining whether an NRI, for instance a person who is gainfully employed in the UK, would be liable to tax in the UK on the rental income that he earns in India or the gains that accrues to him as a result of alienation of an immoveable property