India | Tax | Union Budget 2023 | Key personal tax proposals


February 3, 2023

02 February 2023

India | Tax | Union Budget 2023 | Key personal tax proposals

Summary

The Hon’ble Finance Minister (FM) of India presented the Union Budget 2023 on 1 February 2023. In this update we mention below the key proposals pertaining to personal tax as announced therein.

Proposals in detail

Personal Tax Rates

• There is no change in the tax rates under the Old Tax Regime (OTR).
• New Personal Tax Regime (NPTR) will be the default regime. The taxpayers have an option to continue under the OTR. However, persons having business or professional income can make this choice only once.
• Amendments in NPTR:
➢ For Resident taxpayers, 100% tax rebate on income up to ₹7 lakh (0.7 million) as against ₹5 lakh (0.5 million) earlier
➢ Standard deduction of ₹50,000 for salaried individuals and pensioners
➢ Deduction of up to ₹15,000 allowed on family pension
➢ Maximum surcharge rate reduced to 25% from 37% for income exceeding ₹5 crore (50 million) reducing the maximum marginal rate to 39% from 42.74%

• Revised effective tax rates [including surcharge and cess] at illustrative income levels:

Income range [₹]Existing Proposed 
                             –                 250,0000.00%0.00%
                 250,000                 300,0005.20%0.00%
                 300,000                 500,0005.20%5.20%
                 500,000                 600,00010.40%5.20%
                 600,000                 750,00010.40%10.40%
                 750,000                 900,00015.60%10.40%
                 900,000             1,000,00015.60%15.60%
             1,000,000             1,200,00020.80%15.60%
             1,200,000              1,250,00020.80%20.80%
              1,250,000             1,500,00026.00%20.80%
             1,500,000             5,000,00031.20%31.20%
             5,000,000          10,000,00034.32%34.32%
          10,000,000          20,000,00035.88%35.88%
          20,000,000          50,000,00039.00%39.00%
Above 50,000,00042.74%39.00%

 

* Changes in the tax rates have been highlighted in the above table

 

Capital Gains

• Conversion of physical form of Gold into Electronic Gold Receipt (EGR) or vice versa not to be considered as “transfer” of asset. Hence, no capital gain would arise on such conversion. At the time of sale of the converted asset, for the purposes of computing capital gains, the aggregate period of holding and cost of acquisition of original asset (Gold/ EGR) will be considered.
• Where any interest paid on housing loan has been claimed as deduction for computing the income from house property, such interest is not to be included in the cost of acquisition/ improvement for computing capital gains on sale of such house property.
• Capital gains arising from the transfer / redemption / maturity of Market Linked Debentures (MLD) to be taxable as short-term capital gains irrespective of the holding period. MLD has been specifically defined.
• Capital gains arising on sale of residential house property and reinvested in new residential property are eligible for exemption subject to the cost of the new property. It is now proposed that if the cost of the new asset exceeds ₹10 Crores (100 million), the cost will be deemed to be capped at ₹10 crores. Similar cap is proposed for capital gains exemption available on sale of any other long term capital asset invested in new residential property.

Income from Other Sources

• Under existing provisions, money paid / Indian property transferred by a Resident to a Non- Resident in excess of ₹50,000 is subject to tax. These provisions will now be applicable to ‘Resident but Not Ordinarily Resident’ recipients as well.
• Any payment from Life Insurance policy(s) [other than Unit Linked Insurance Plan (ULIP) and Keyman Insurance] issued on or after 1 April 2023, having annual premium exceeding ₹5 lakh (0.5 million) (in any year during the term of the policy) would be taxable net of premium paid, except in case of death of insured person.

 

Tax deducted at source (TDS) / Tax collected at source (TCS)

• TDS rate reduced to 20% from 30% on withdrawal of accumulated balance under the Employees’ Provident Fund Scheme, 1952 in absence of Permanent Account Number of the individual withdrawing the balance.
• TDS rate applicable on payment of income from units of mutual funds to Non-Residents reduced to the lower of 20% or the rate applicable under the relevant Double Taxation Avoidance Agreement, subject to furnishing of Tax Residency Certificate.
• TCS rate on overseas remittance for medical and education retained. However, TCS rate on overseas remittances under Liberalised Remittance Scheme and payment to seller of an overseas tour package increased to 20% from 5% effective 01 July 2023, without any threshold.

 

Other proposals

• Exemption limit for leave encashment (for non-government salaried employees) on retirement increased to ₹25 lakh (2.5 million) from ₹3 lakh (0.3 million). Notification to be issued separately.
• Timeline for tax authorities to complete assessment proceedings changed as follows:
➢ Updated Tax Return: 12 months from the end of FY in which such return is filed
➢ Other than Updated Tax Return: Increased from 9 months to 12 months
• For reassessment proceedings, timeline of 3 months prescribed for filing tax return in response to the notice issued.
• Under presumptive taxation, turnover limits enhanced to ₹75 lakh (7.5 million) from ₹50 lakh (5 million) for specified professionals and to ₹3 crore (30 million) from ₹2 crore (20 million) for certain eligible business, subject to conditions prescribed.

 

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
• Ishita Sengupta, Partner and India Leader | ishita.sengupta@vialto.com
• Sundeep Agarwal, Partner | sundeep.agarwal@vialto.com
• Ravi Jain, Partner | ravi.jain@vialto.com
• Anand Dhelia, Partner | anand.dhelia@vialto.com
• Chander Talreja, Partner | chander.talreja@vialto.com

Further information on Vialto Partners can be found here: www.vialtopartners.com

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