A Synopsis of the Notable Direct Tax Proposals of the Finance Bill, 2023

The rebate under Section 87A was Rs. 12,500/- for a total income up to Rs. 5,00,000/-.

1. New Changes in Section 115BAC

By the Finance Act, 2020 a new Section 115BAC was introduced making an option available to the assessee to choose to pay tax under the said section from AY 2021-2022, or under the existing rates. However, if the option was exercised to pay tax under Section 115BAC, most of the Chapter VI-A deductions (under Section 80C etc.), and also depreciation, set off of losses etc. would not be available. The option is still available for AY 2023-2024 subject to the proviso to sub-section 5 of Section 115BAC.

A new sub-section 1A is proposed to be inserted where the slab rates for an individual, HUF, AOP(other than co-operative socieities), BOI(whether incorporated or not), or an artificial juridical person under Section 115BAC for AY 2024-2025 are as follows: –

Sr. No.Total IncomeRate of Tax
1.Up to Rs. 3,00,000/-Nil
2.From Rs. 3,00,001/- to Rs. 6,00,000/-5%
3.From Rs. 6,00,001/- to Rs. 9,00,000/-10%
4.From Rs. 9,00,001/- to Rs. 12,00,000/-15%
5.From Rs. 12,00,001/- to Rs. 15,00,000/-20%
6.Above Rs. 15,00,001/-30%
2. New changes in rebate under Section 87A

The rebate under Section 87A was Rs. 12,500/- for a total income up to Rs. 5,00,000/-. This has been increased by increasing the total income for the purposes of rebate to Rs. 7,00,000/- and increasing the rebate of tax to Rs. 25,000/-. Therefore, individual’s resident in India having a total income of up to Rs. 7,00,000/- will not be liable to pay any income-tax.

3. Changes in taxation of capital gains on investment in residential property

Section 54 provides for exemption of capital gain on sale of a residential house when a new residential house is purchased. However w.e.f 1-4-2024, it is proposed that where the cost of the new asset(new residential house) exceeds 10 crore, the amount exceeding 10 crore will not be taken into account for the capital gains exemption.

4. New provision for computation on income from co-operative society

A new Section 115BAE is proposed to be inserted where the income of a co-operative society is to be taxed at 15% for AY 2024-2025 and subsequent years if certain conditions are satisfied, or 22% in case the co-operative society is not engaged in the manufacture of any article or thing. Short-term capital gains on transfer of capital asset on which no depreciation is allowable is to be taxed at 22%. Some of the conditions for claiming exemption are that the co-operative society must be registered on or after 1st April, 2023 and has commenced manufacture and production of an article or thing before 1st March, 2024 and the business is not formed by splitting up or reconstruction of an already existing business. 

5. Changes in taxation of income from online games

Section 115BB which provides for taxation of income from card games, horse racing etc. now makes it clear that the said section shall not apply to income from online games. A new Section 115BBJ is proposed to be inserted which provides for taxation of online games. Income from online games is to be taxed @30%. ‘Online game’ is defined in clause (iii) to the Explanation as a game that is offered on the internet and is accessible by a user through a computer resource including any telecommunication device. ‘Computer resource’ and ‘Internet’ are also defined under the said Explanation

From 1st July, 2023, winnings from an online game are not subject to TDS under Section 194B. 

A new section 194BA is proposed to be inserted for deduction of TDS from winnings from an online game. Sub-section 1 is the charging section which provides for deduction of TDS in the manner prescribed. Proviso 1 makes it clear that deduction of TDS is mandatory even if there is a withdrawal from the account at any time during the financial year.
The TDS is to be deducted on net winnings. TDS is to be deducted from the user account at the end of the financial year.

Net winnings are to be subjected to TDS irrespective of whether the amount is in cash or kind.

6. Interplay between the provisions of Section 44AB, Section 44AD and Section 44ADA

Section 44AB provides for audit of accounts of certain persons carrying on business or profession. Proviso 1 has been amended and now provides that the said section shall not apply to persons who declare income from business or profession under Section 44AD and Section 44ADA. Therefore, no audit under Section 44AB will be required for such persons.

Section 44AD provides for presumptive taxation in the hands of an eligible assessee in the case of an eligible business. The presumptive scheme can be utilized by the assessees if they are engaged in an eligible business. Clause (b) of the Explanation to Section 44AD defines ‘eligible business’. Two provisos to clause (b) of the Explanation to Section 44AD have been inserted to provide that: 
(i) if the total cash receipts of a business do not exceed 5% of the total turnover or gross receipts, the business will be an eligible business if the total turnover does not exceed 3 crore (Proviso 1)
(ii) For the purposes of the (i) above, if the cheque drawn on a bank is not account payee, the amount of the receipt would be deemed to be in cash(Proviso 2)
Therefore, the business may have a turnover of upto 3 crore in case the conditions are satisfied to avoid audit under Section 44AB.

Section 44ADA provides for computation of profits and gains of a profession on presumptive basis. Proviso 1 is inserted which states that if the total cash receipts do not exceed 5% of the gross receipts, the total gross receipts for the purposes of Section 44ADA would be Rs. 75 lacs. Therefore, assuming proviso 1 is complied with, an assessee may have gross receipts of upto 75 lac to claim the benefit of Section 44ADA. Proviso 2 of Section 44AD applies mutatis mutandis to Section 44ADA.

7. Miscellaneous
  •  Angel Tax under Section 56(2)(viib) is proposed to be levied on a company irrespective of the residency status of the investor. Therefore, post 1st April, 2024 investment by a non-resident will also attract this section.
  • The definition of eligible startup under Section 80-IAC has been amended to include a startup incorporated upto 1st April 2024.
  • A new Section 50AA is proposed to be introduced for taxation of capital gains on sale of Market Linked Debentures excluding the STT paid pursuant to such transfer. 
  • It is proposed to introduce a new clause (h) to Section 43B to disallow deduction under this Section for any amounts paid beyond the time-limit stipulated under Section 15 of the MSME Act, 2006. The said section contemplates payments to the supplier by the buyer within a certain time frame and if the payment is not made within the allotted time, the deduction under Section 43B will not be allowed.
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