On 1 February 2023, the Finance Minister presented the Union Budget 2023/24 before the parliament. Key tax measures include proposed revisions to the alternative income tax rate slabs for individuals and Hindu Undivided Families (HUFs) introduced in Finance Act 2020, and new incentives for micro, small and medium-sized enterprises, cooperatives and start-ups.
Individual taxation
Individual income taxation will be further simplified through the following measures:
- the alternative tax scheme for individuals and HUFs introduced in Finance Act 2020 will be revised and will become the default regime. Under this regime, the number of slabs will be decreased from seven to five slabs. The exemption limit will be increased to INR 300,000 (from INR 250,000). Further, the income tax rebate limit will be increased from INR 500,000 to INR 700,000;
- the highest surcharge rate on income above INR 50 million will be reduced from 37% to 25% under the new regime;
- the standard deduction will be extended to the new regime for taxpayers on salaries and pensioners; and
- the tax exemption limit on leave encashment on retirement for non-government salaried employees will be increased to INR 2.5 million.
Incentives for industries
- For cooperatives, the 15% corporate tax benefit will be extended to new cooperatives that commence manufacturing by 31 March 2024. A higher limit of INR 30 million on cash withdrawals for the purpose of exemption from tax deducted at source (TDS) is also proposed.
- The date of incorporation for start-ups for the purpose of availing income tax benefits will be extended by 1 year (i.e. until 31 March 2024). The benefit of the carry-forward of losses on the change of shareholding will be extended to 10 years from incorporation (currently, 7 years).
- For micro, small and medium-sized enterprises, the limit for micro enterprises and professionals to avail of benefits of presumptive taxation will be enhanced. Deductions on payments made to MSMEs will be allowed only when payment is made.
- The income of authorities, boards and commissions set up by statutes of the Union or states will be exempted from income tax in certain sectors.
- The tax benefits to funds relocating to the International Financial Services Centre - Gujarat International Finance Tech City (IFSC – GIFT City) will be extended until 31 March 2025.
Indirect taxation
- Exemptions and reductions in customs duties on certain imports are proposed, such as an exemption for imports of parts and inputs in mobile phone production.
- The customs duty exemption on lithium-ion batteries will be extended by 1 year.
- Import duties on silver bars and articles will be increased.
Further details of the proposed tax measures in Budget 2023/24 will be reported in due course.