Budget 2023: FM’s Pathaan and PM’s Tiger deliver box-office budget

Illustration/Uday Mohite

India is aiming to become the superpower of this century. That is what our finance minister has done with our prime minister - the Pathaan-Tiger combine. They are going to collect taxes from high networth individuals (HNIs) and super HNIs using all avenues possible. One of them is tax collected at source (TCS) on overseas tour packages which has increased from five to 20 per cent, and the money will be used for massive infrastructure and defence outlays.

While there are recent initiatives that may set us on the superpower track, there are some overlooks in the Amrit Kaal offering. Let us take a look at the main points of Budget 2023.

Tax-ing issues

Let us look at the redevelopment boom in cities like Mumbai. An individual, who gives his house to a builder for a new one where such gain exceeds R10 crore, would be subjected to 24 per cent tax. Is this inheritance tax of sorts for the super rich through the backdoor?

Also Read: 'Substantial changes' made in personal I-T in Budget 2023, says FM Nirmala Sitharaman

People watch Union Budget 2023 announcements at a shop in Dadar on Wednesday. Pic/Pradeep Dhivar

The surcharge for those earning more than Rs 5 crore has been reduced from 37 per cent to 25 per cent under the new tax regime, as if it really mattered at those levels. Effective tax rate has been reduced from 42 per cent to 39 per cent under the new regime.

There are benefits for the common man - soldiers of Pathaan and Tiger - in the new regime of taxation. Those with a gross income of Rs 15 lakh, who would have been taxed for Rs 1.87 lakh earlier, will now be taxed for Rs 1.50 lakh. Then we also have the benefit of the revised threshold of rebate from Rs 5 lakh to Rs 7 lakh.

Ease please

The FM aims at reducing 39,000 compliances and decriminalising 3,400 legal provisions to continue the ‘ease of doing business' and reduce unnecessary prosecution. To promote "Make Artificial Intelligence (AI) in India and Make AI work for India", three centres of excellence for AI will be set up in top educational institutions. Leading industry players will partner in developing cutting-edge, scalable applications in the areas of agriculture, health, tourism and sustainable cities.

While systems around KYC, DigiLocker are being set up, the establishment of e-courts is the real show-stopper. To promote growth, start-up losses can be carried forward for 10 years instead of the erstwhile seven, turnover limits of presumptive taxation for small businesses have been enhanced from the current Rs 2 crore to Rs 3 crore and professionals from Rs 50 lakh to Rs 75 lakh, to mitigate compliance burden.

However, the Budget neither captures the problems of the non-resident Indian (NRI) class confused with the issue of residential status nor the double taxation of dividend in the hands of the company (corporate tax) and the individual (income tax).

One should not take the credit away from the FM for measures to reduce time limits for income tax and GST administration. Matters like reduced time limits from 30 days to 10 days for the transfer pricing officer for production of documents or processing tax returns or even completing assessment orders from 93 days to 16 days, thus aiming at real-time compliance by the administration, also is a six-pack Pathaan move.

Shine fine

Then we have the happy housewife. With the incentivisation of lab grown diamonds and import duty reduction on raw material for these, the FM has proved that sometimes diamonds and even Pathaan-Tiger are a girl's best friend. This is a remarkable move, especially when India is one of the leading manufacturers, processors of diamonds and jewellery globally.

The Hum Saath Saath Hain approach to take all private employees along with them, by revising their leave encashment limit from Rs 3 lakh of 2002 to Rs 25 lakh in current times will make key soldiers adequately resourced for support.

However, this amendment has not been placed in the Finance Bill or memorandum. Having done so much, one wonders why the medical insurance limit was not increased from the current threshold that would have led to more motivation. I guess, like they say, you cannot win them all!

The continued support to GIFT City is manifested in the thrust towards extension in date of transfer resulting in relocation of funds up to 31/03/2025 for GIFT City and IFSC companies set up therein.

There is zero tax on agriculture for farmers and significant taxation of corporations carrying on agricultural activity. This has potential to undertake manufacturing by cooperatives at a 15 per cent tax rate, something which can provide opportunities for efficiencies through such incentivisation.

Surgical strikes

The reduction of Goods and Services Tax (GST) is still wishful thinking and people will need to wait. At the same time, certain input credits in regard to ultimate corporate social responsibility (CSR) costs have been done away with. Also, supply of warehoused goods to any person before clearance for home consumption will now be included in the value of exempt supply and given this, claiming of input tax credit on the same will be restricted.

The change in provisions pertaining to place of supply would impact the exporter of goods. Currently, place of supply of services by way of transportation of goods, including by mail or courier to a place outside India where location of supplier and recipient is in India, is the place of destination of such goods and is treated as exports. This provision has now been
omitted, making the same taxable in India.

Moreover, in case of Online Information Database Access and Retrieval (OIDAR) services, irrespective of the purpose of receipt of services ie irrespective of whether the OIDAR services are received for purposes other than commerce, industry or any business/profession or not, the same will be taxable if provided by any person located in non-taxable territory to an unregistered person in taxable territory. Also, the condition in the definition of OIDAR, which currently requires the same to be essentially automated with minimum human intervention, is removed, making it more exhaustive.

Those trying to pull a fast one, beware. Those trying to use avoidance measures for tax brace for more surgical strikes of the Tiger where companies have assigned costs of intangibles that are not paid for, and, claiming benefit in computing the capital gains. The Pathaan and Tiger will need Kabir - the Unicorns from start-ups - and amendments during the year to clarify positions from time to time.

Rs 75L
Turnover limit of presumptive taxation for professionals