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On February 01, 2023, Hon. Finance Minister Mrs. Nirmala Sitharaman will present the last full budget of the Modi Government 2.0 before the nation celebrates the festival of democracy i.e., General Elections 2024. With this, every one from every sector has some what big expectations from the Hon. Finance Minister to clear the air and give some benefits to every sector which itself is a herculean task.
Let us see the key expectations from the Union Budget 2023-2024 from the Direct Taxation point of view: -
At present, a maximum deduction of INR 150,000 is allowed for investment made in various avenues prescribed under section 80C of the Act (this includes contribution to pension funds under section 80CCC, and pension schemes under section 80CCD).
There are too many investment options which are covered under the overall existing limit of INR 150,000. Furthermore, the current limit has not been increased for many years and may be inadequate now. Hence, the Government may consider sperate exemption limits for important investment avenues or may look to increase the overall deduction limit to at least INR 250,000.
Currently, salaried employees are allowed a standard deduction of INR 50,000. The intent behind this is to cover for various costs incurred by the employees during the performance of their employment. However, this deduction is relatively low in comparison to actual expenses incurred by the employee and for which no deduction is allowed elsewhere in the Act.
Hence, it is recommended that standard deduction for salaried employees may be increased to at least INR 100,000, or alternatively the deduction towards medical expenses and transport allowance may be given in addition to standard deduction.
The 15% concessional tax rate is available for manufacturing companies provided they commence manufacturing before 31 March 2024. One hopes that this concessional regime (which is globally very competitive) is made a long-term part of the tax laws (without any sunset date) given the significant opportunity available to India to emerge as a China plus one or Europe plus one alternative for becoming a global manufacturing hub.
It has been observed that the assessing officers do not grant effect of appellate orders within a reasonable time when they are favorable to assessees. It is likely that an assessee has to do follow ups and file reminders to get refunds processed. Therefore, it is recommended that a provision may be inserted in the Act providing clear time limits to grant refund pursuant to an appeal effect order, thereby making assessing officers accountable to grant refunds within the prescribed time.
Installation and setting up of solar power plants involve high capital expenditure. Section 35AD provides for deduction of capital expenditure against taxable income in case of specified businesses that currently does not include any renewable energy vertical. With a view to incentivizing the solar power industry, government should consider extending the benefit under Section 35AD, to solar power companies.
Section 80-IAC of the Act provides a deduction to eligible start-ups of an amount equal to 100% of the profits and gains derived from eligible business for three consecutive assessment years. The conditions for start-ups to qualify as “eligible start-ups” amongst other include date of incorporation to be between 1 April, 2016 and 31 March 2023.
It is suggested that the last date of incorporation be further extended by a period of five years to 31 March 2028.
Similarly, the sun-set clause for “eligible start-ups” for the purpose of section 54GB (which provides exemption from capital gains to eligible investor being individual and HUF) is suggested to be extended to by a period of five years to 31 March 2028.
Last but not the least, the ask from all corners is to decrease the compliance burden. In India, we have corporates engaging scores of people and professionals just on compliance with TDS and TCS provisions. Multiple rates of TDS, interpretation issues with regard to provisions where one is collecting taxes of third persons as an agent of the government do not fit into the Ease of Doing Business agenda of the government. The need is to have fewer withholding rates and to do away with TCS.
As we are into the Amrit Kaal of our Independence; there are high hopes from this Union budget that will set the tone and template which will prepare India for the next 25 years. Let us see whether the expectations right from India Inc to a Common Man are met with this Union budget or not.
