From Salaried Taxpayers To Startups: All You Need To Know About Tax Changes Announced In Budget 2023

India's Finance Minister Nirmala Sitharaman today presented the Union Budget 2023, her fifth budget presentation overall, and the 11th one under PM Modi's government.

Being the current government's last full budget before the general elections scheduled for next year, Budget 2023 did manage to bring cheer for some sections of the economy, especially at a time when inflationary concerns, global recession fears, and rising interest rates are a concern for everyone.

Let us understand the major tax changes announced by FM Sitharaman in Budget 2023 for various sections such as salaried taxpayers, startups, senior citizens, and others.

Tax Changes For Salaried Taxpayers

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Rebate Limit Under Section 87A Increased To 7 lakh

At present, those with income up to Rs 5 lakh do not pay any income tax under either the old or new tax regimes, thanks to the rebate under Section 87A. However, FM Sitharaman has proposed raising the rebate limit to Rs 7 lakh in the new tax regime.

As a result of the rebate, resident individuals with total income up to Rs 5,00,000 did not have to pay any tax under either the old or new regimes. It is now proposed in Budget 2023 to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to Rs 7,00,000.

So, people in the new tax regime with income up to Rs 7 lakh will not have to pay any tax at all.

Tax Slabs Under New Regime Changed

FM Sitharaman has also proposed to change the tax structure in the new regime by reducing the number of slabs from seven to six, and increase the tax exemption limit to Rs 3 lakh.

The new proposed tax rates are:

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Up to Rs 3 lakh: NIL

Rs 3 lakh- Rs 6 lakh: 5%

Rs 6 lakh-Rs 9 lakh: 10%

Rs 9 lakh-Rs 12 lakh: 15%

Rs 12 lakh- Rs 15 lakh: 20%

Over Rs 15 lakh: 30%

Standard Deduction Benefit Increased

FM Sitharaman also proposes extending the benefit of standard deduction to the salaried class and pensioners, including family pensioners, under the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500.

As per the Budget 2023 speech, a standard deduction of Rs 50,000 for salaried individuals and a deduction from family pension of up to Rs 15,000, which are currently allowed only under the old regime, are now proposed to be allowed under the new regime as well.

Reduction In Highest Tax Rate

As per the Budget 2023 speech, the surcharge on income tax under both the old regime and the new regime is 10 percent if income is above Rs 50 lakh and up to Rs 1 crore, 15 percent if income is above Rs 1 crore and up to Rs 2 crore, 25 percent if income is above Rs 2 crore and up to Rs 5 crore, and 37 percent if income is above Rs 5 crore.

It is now proposed that under the new regime, the surcharge for those individuals, HUF, AOP (other than cooperative), BOI, and AJP, will be the same, except that the 37 percent surcharge rate will not apply. The highest surcharge will be 25% on earnings over Rs 2 crore.

This would reduce the maximum rate from about 42.7 percent to about 39 percent. No change in surcharge is proposed for those who opt to remain under the old regime.

Encashment Of Earned Leave At Retirement

Currently, encashment of earned leave up to 10 months of average salary, at the time of retirement in the case of an employee (other than an employee of the Central Government or State Government), is exempt under subclause (ii) of clause (10AA) of section 10 of the Income-tax Act ("the Act"), to the extent notified. At present, the maximum amount that can be exempted is Rs 3 lakh.

Budget 2023 has proposed to issue a notification to extend this limit to Rs 25 lakh.

Tax Changes For Startups

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"Entrepreneurship is vital for a country¡¯s economic development. We have taken a number of measures for start-ups and they have borne results. India is now the third largest ecosystem for start-ups globally, and ranks second in innovation quality among middle-income countries. I propose to extend the date of incorporation for income tax benefits to start-ups from 31.03.23 to 31.3.24," said FM Sitharaman in her budget speech.

So, at present, certain start-ups are eligible for some tax benefits if they are incorporated before April 1, 2023. The period for incorporation of such eligible start-ups is now proposed to be extended by one year to before April 1, 2024.

Next is the relief to start-ups in carrying forward and setting off of losses. The condition of continuity of at least 51 percent shareholding for setting off carried forward losses is relaxed for an eligible start-up if all the shareholders of the company continue to hold those shares.

At present, this relaxation applies for losses incurred during the period of seven years following the incorporation of such a start-up. It is proposed to increase this period to 10 years.

Tax Deduction From Capital Gains

For better targeting of tax concessions and exemptions, Budget 2023 has proposed to cap deductions from capital gains on investment in residential house under Sections 54 and 54F at Rs 10 crore. Another proposal with similar intent is to limit income tax exemption from proceeds of insurance policies with a very high value.

Changes For Senior Citizens

The maximum deposit limit for the Senior Citizen Savings Scheme (SCSS) will be enhanced from Rs 15 lakh to Rs 30 lakh. Also, the maximum deposit limit for the Monthly Income Account Scheme will be enhanced from Rs 4.5 lakh to Rs 9 lakh for single account and from Rs 9 lakh to Rs 15 lakh for joint account.

Also Read: 5 Tips To Buy Health Insurance For Parents

Tax On Online Games' Winning

For online games, Budget 2023 has proposed to provide for TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year. Furthermore, TDS would be exempt from the Rs 10,000 threshold. For lottery, crossword puzzle games, etc., the threshold limit of Rs 10,000 for TDS shall continue but shall apply to aggregate winnings during a financial year.

Other Changes In Taxes

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There are a number of proposals relating to rationalisation and simplification of taxes which are put forth in Budget 2023.

1.Income of authorities, boards and commissions set up by statutes of the Union or State for the purpose of housing, development of cities, towns and villages, and regulating, or regulating and developing an activity or matter, is proposed to be exempted from income tax. Other major measures in this direction are:

2.Removing the minimum threshold of Rs 10,000/- for TDS and clarifying taxability relating to online gaming;

3.Not treating conversion of gold into electronic gold receipt and vice versa as capital gain;

4.Reducing the TDS rate from 30 per cent to 20 per cent on taxable portion of EPF withdrawal in non-PAN cases; and

5.Taxation on income from Market Linked Debentures.

Other Major Proposals In Finance Bill

1.Extension of period of tax benefits to funds relocating to IFSC, GIFT City till 31.03.2025;

2.Decriminalisation under section 276A of the Income Tax Act;

3.Allowing carry forward of losses on strategic disinvestment including that of IDBI Bank; and

4.Providing EEE status to Agniveer Fund.

5.Increasing threshold limit for Co-operatives to withdraw cash without TDS It is proposed to enable co-operatives to withdraw cash up to ` 3 crore in a year without being subjected to TDS on such withdrawal.

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