February 2023 / India

February 1 2023

India to Further Simplify Individual Income Tax Regime, Increase Tax Exempt Limit in Union Budget 2023

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.

February 7 2023

Union Budget 2023: India Proposes GST Amendments to Scope of Online Information and Database Access Retrieval, Penalty for Offences by E-Commerce Operators

The Finance Minister of India presented the Union Budget 2023-24 to the parliament on 1 February 2023. Key indirect tax measures include amendments to the scope of the online information and database access retrieval (OIDAR), penalties on offences by e-commerce operators, and various changes in customs duty rates and exemptions.

Goods and services tax (GST)

  • Input tax credit will be restricted on goods and services in relation to:
    • the supply of warehoused goods to any person (as referred to under Schedule III of the Central Goods and Services Tax Act), which will be considered as an exempt supply; and
    • corporate social responsibility expenses as referred to in the Companies Act, 2013.
  • Registration will not be required if a supply relates exclusively to exempted business.
  • The coverage of the OIDAR will be expanded to:
    • include services in relation to business and commerce to unregistered recipients; and
    • exclude the condition for a service being essentially automated and involving minimal human intervention.
  • The key GST amendments for e-commerce operators are:
    • suppliers of goods through e-commerce operators can opt for the Composition Scheme for GST payment; and
    • penal provisions will be introduced on e-commerce operators for the supply of goods and services made through them by unregistered persons, inter-state supply by persons not eligible to carry such supplies, and failure to furnish correct details in tax collected at source (TCS) returns for the supply of goods by unregistered persons.
  • The place of supply of services by way of transportation of goods to a place outside India, in case both the supplier and recipient are in India, will be amended to be the location of the registered recipient or the location of handing over of goods in case of an unregistered recipient.
  • The following offences will be decriminalized:
    • obstructing or preventing officers from performing duties,
    • tampering with evidence or documents,
    • failing to supply information or providing false information.
  • Specified offences involving a value less than INR 20 million (except for offences relating to the issuance of invoice without supply) will be decriminalized.
  • In terms of the compounding of offences:
    • there will be no compounding benefit in the case of an offence relating to the issuance of invoice without supply; and
    • the amounts of compounding benefit will be rationalized, such that the minimum will be reduced from INR 10,000 or 50% to 25% of the tax amount involved and the maximum will be reduced from INR 30,000 or 150% to 100% of the tax amount involved.
  • A new provision will be inserted to enable the Common Portal to share specified information furnished by registered persons with such other systems (as may be notified), in form and manner as may be prescribed, with the consent of the recipient/supplier.

Customs duty

  • The government will continue to incentivize domestic value addition by:
    • reducing the effective customs duty rates on camera lenses and components used in mobile phones and parts of open cells of TV panels;
    • increasing the effective customs duty rates of motor vehicles in semi knocked down (SKD) form (including electric vehicles) and completely built unit (CBU) form; and
    • immediately increasing duties on finished goods, such as chimneys, bicycles and toys.
  • Separate classifications will be introduced to align products under international standards with Indian standards for chemicals; specific entries for flat panel display modules will be created.
  • Over 150 exemptions will be extended under Notification No. 50/2017 and standalone exemption notifications. About 30 exemptions will be discontinued.
  • Solar power plants and solar power projects will be excluded from power project import benefits that allow imports under a concessional customs duty rate.

Amendments to indirect taxes now subsumed under the GST Act

Central excise

The proposed changes to central excise, which apply to certain products manufactured in India that are outside the purview of GST, are the following:

  • the National Calamity Contingent Duty (a form of excise duty) on specified cigarettes will be increased by 16%; and
  • an excise duty exemption will be provided to blended compressed natural gas (CNG) to the extent of the GST paid on the biogas or compressed biogas contained in the blended CNG.

Central sales tax (CST)

The Central Sales Tax Appellate Authority (a body constituted under the CST Act) will no longer be functional. Pending cases will be transferred to the Central Excise Service Tax Appellate Tribunal (CESTAT). The CESTAT will have jurisdiction over any disputes relating to the inter-state sale of goods.