Budget 2023 Income Tax Updates

Budget 2023 (Income Tax Updates)

Posted by CA Pankaj Kumar Vats
In: Taxation
On 14 Feb 2023
  1. Change in the tax structure in new tax regime, no tax till income of Rs. 7,00,000.00

No change in Old Tax Regime
The new tax regime is designed in such a way that in most of the cases, it will be better to go with the New Tax Regime provided the Total Income is in excess of Rs. 7,00,000/- and lower than 15,00,000/-
However this is just a broader view, it may vary on the basis of facts.

  1. Standard Deduction from salary income for Rs. 50,000.00 will now be available in new tax
    regime as well
  2. Highest surcharge is reduced from 37% to 25% in new tax regime. Thereby making the highest tax rate to be 39%
  3. The limit for leave encashment on retirement for non govt salaried employees will be increased to Rs. 25,00,000.00
  4. The New Tax regime will be the default tax regime
  5. Deduction of Expenses incurred on payments to MSME to be allowed only when the payment is made, relevant changes in Section 43B are proposed

This is really an Alarming Amendment for all businesses.
Let us understand this with an example:-

There is a business with name XYZ. Its financial data is as follows:-
Profit and Loss for the Year
Total Revenue: 1,00,00,000.00
Total Expenses: 80,00,000.00
Net Profit : 20,00,000.00

Balance Sheet Figures
Total Customer Balances: 30,00,000.00
Total Vendor (Other than MSME) Balances: 12,00,000.00
Total Vendor (MSME) Balance: 10,00,000.00

Now as per the amendment proposed in the budget, if the business do not makes the
payment to MSME Vendors, on or before the filing of income tax return or due date of filing
of income tax return, then such amount (payable to MSME Vendors) will be added to the
income of the business.
Here in our case, let us assume that Payment to MSME Vendors made till the date of filing of
return is made partially for 6,00,000.00

So now the Total Income will be calculated as follows:-
Profit as per Profit and Loss A/c : 20,00,000.00
Add: MSME Balance : 4,00,000.00<br
(10,00,000 – 6,00,000)
Final Profit : 24,00,000/-
Thereby increasing the tax liability.

  1. New Co-operatives that commence manufacturing activities till 31.03.2024 will get the benefit of tax rate @ 15%
  2. Date of Incorporation for startups for taking benefits of income tax is now extended to 31 st
    March 2024
  3. C/f of Losses in case of change in shareholdings to be for 10 years in place of 7 years
  4. Cap Gain Deduction Allowed U/s 54 and 54F to be capped at 10 cr max
  5. Insurance maturity will be taxable where annual premium is in excess of 5 lacs
  6. TCS 5% on remittance for medical treatment in excess of 7 lacs
  7. TCS 0.5% on remittance for education purpose in excess of 7 lacs
  8. TCS on other purpose remittance will be 20%

Short Summary

More compliance is imposed on business via amendment in Section 43B
Demotivation of Old Tax Regime and Saving Schemes
Increased cost of foreign travels

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