Another budget and another similar pattern - very few things on taxation, especially the Old income tax regime, but expanding even more on infra - physical as well as digital - with another steep rise in Govt Capex. There are a few changes on the New tax regime front too, which we will try to cover in the later part of this article, with an example too.
Key Highlights:
Once again, these measures are aimed to build upon the foundation laid out in the previous budget, as we move towards India@100.
4 key opportunities have been identified, as focus areas in this journey - Economic empowerment of women, PM VIKAS (development of artisans to suit current needs), Tourism, Green growth.
7 priorities of the budget - Inclusive Development, Reaching the Last Mile, Infrastructure and Investment, Unleashing the Potential, Green Growth, Youth Power, Financial Sector.
Physical Infra, renewable focus:
An Urban Infrastructure Development Fund (UIDF) will be established to create urban infrastructure in Tier 2 and Tier 3 cities.
On urban sanitation - All cities and towns will be enabled for 100% mechanical desludging of septic tanks and sewers to transition from manhole to machine-hole mode.
13 GW renewable energy capacity in Ladakh will be integrated on grid for inter state transmission, with a central govt expenditure of INR 8,300 crore.
A Green Credit Programme will be notified under the Environment (Protection) Act, to incentivize environmentally sustainable and responsive actions.
Digital Infra:
An open source, open standard, interoperable digital public infrastructure for agriculture will be built. This, combined with an Agriculture Accelerator Fund to be set up, will help bring in technology to improve farming practices and help farmers increase productivity and profitability.
A computerization of Primary Agricultural Credit Societies is initiated with an aim to build a national co-operative database. Aim is to decentralize the storage capacity, to improve storage of farm produce and help farmers get a better pricing for their produce.
Setting up of a National Digital Library, with device agnostic accessibility.
A tourist experience App to be launched, covering various aspects like tourist safety, physical connectivity, local guides etc. about the destination. Atleast 50 such destinations to be identified initially.
National Data Governance Policy is announced to allow anonymized access to data.
A simplified, risk based KYC process to be adopted. Financial sector regulators to also review the KYC process to align with the Digital India initiative.
Digilocker service and Aadhar to be relied on as a core source to have a single place for citizens for updating their identity and address. Scope of documents stored in Digilocker will be expanded to enable Fintech innovative services.
A national financial information registry will be set up to serve as the central repository of financial and ancillary information. A new legislative framework will govern this credit public infrastructure, and it will be designed in consultation with the RBI.
PAN will be used as the common identifier for businesses, for all digital systems of specified government agencies. This will be done as a legal mandate, to improve ease of doing business.
A Unified Filing Process will be introduced for filing forms and returns with various government agencies, at a single place.
Economic performance:
Capital expenditure was announced to the extent of a staggering 10 lakh crores - which is almost 3x the expenditure announced in FY 2019-20, and a 33% increase over previous budget.
Capital expenditure on Railways is 2.4 lakh crores.
Fiscal deficit for FY 2022-23 stands at 6.4% of GDP and is estimated to be at 5.9% of GDP for FY 2023-24. In line with the previous budget announcement, we are on track to achieve the Fiscal deficit target of 4.5% of GDP, by FY 2025-26.
Tax changes:
Number of basic customs duty rates on goods, other than textiles and agriculture, reduced from 21 to 13, for a simplified tax structure.
National Calamity Contingent Duty (NCCD) on specified cigarettes to be increased by ~ 16%.
Surcharge on income exceeding INR 5 Crore is now reduced for 37% to 25%. This will bring down the maximum tax rate from 42% to 39%. Though this change applies only in the New tax regime.
Tax free leave encashment limit for non government, salaried employees increased from INR 3 lakhs to INR 25 lakhs.
New tax regime to be the default tax regime. To clarify, this is not mandatory. Individual & HUF Assessees who do not wish to be taxed under this regime, can opt for the old regime.
Deductions under sections 54 to 54F, for long term capital gains, to be limited to INR 10 crore.
Thresholds for opting for presumptive taxation increased from INR 2 Crore to INR 3 crore for businesses and INR 50 lakhs to INR 75 lakhs for specified professions.
Insurance payouts (other than in case of death), for insurance policies (Other than ULIPs) where aggregate premium paid on the policy exceeds INR 5,00,000, shall be taxed. It will not be treated as an exempt income under section 10 (10D) anymore.
Details of changes under New tax regime:
A relief in tax will be available to assessees with total income up to INR 7 lakhs (up from INR 5 lakhs earlier). This means that any tax payable on total income up to this limit, will be provided as a rebate and the assessee will not have to pay any tax. And on a side note - this means that an Income Tax Return still needs to be filed.
Further, this increased limit is applicable only under the new tax regime. It continues to be INR 5 lakhs, under the old tax regime.
Standard deduction from Salary income of INR 50,000 will be allowed under the new tax regime as well.
All other deductions continue to be disallowed. Please refer to our 2020 Budget analysis here for details.
Revised slabs under new regime only:
Income range | Tax rate |
Up to 3,00,000 | Nil |
3,00,001 - 6,00,000 | 5% |
6,00,001 - 9,00,000 | 10% |
9,00,001 - 12,00,000 | 15% |
12,00,001 - 15,00,000 | 20% |
15,00,001 and above | 30% |
To put this in perspective with Old regime slabs and existing new regime slabs, we have the below comparison:
Taxable Income | Old regime Tax Rates | New Regime - Existing Tax Rates | New Regime - New Tax Rates |
Up to 2,50,000 | Exempt | Exempt | Exempt |
2,50,001 - 3,00,000 | 5% | 5% | Exempt |
3,00,001 - 5,00,000 | 5% | 5% | 5% |
5,00,001 - 6,00,000 | 20% | 10% | 5% |
6,00,001 - 7,50,000 | 20% | 10% | 10% |
7,50,001 - 9,00,000 | 20% | 15% | 10% |
9,00,001 - 10,00,000 | 20% | 15% | 15% |
10,00,001 - 12,00,000 | 30% | 20% | 15% |
12,00,001 - 12,50,000 | 30% | 20% | 20% |
12,50,001 - 15,00,000 | 30% | 25% | 20% |
15,00,001 and above | 30% | 30% | 30% |
We are taking a plain vanilla example below, with amounts. Assessee has incomes totalling to INR 20,00,000 and no exempt incomes within that, or no deductions (80C, 80D, Housing loan, rental allowance, etc)
Particulars | Old tax regime | New regime - existing | New regime - new proposed |
Income From multiple sources | 2,000,000.00 | 2,000,000.00 | 2,000,000.00 |
Exempt Incomes | |||
Petrol allowance | 0.00 | 0.00 | 0.00 |
Food Coupons | 0.00 | 0.00 | 0.00 |
Standard Deduction * | 50,000.00 | 0.00 | 50,000.00 |
Net taxable income | 1,950,000.00 | 2,000,000.00 | 1,950,000.00 |
Income from House Property | 0.00 | 0.00 | 0.00 |
Total Income | 1,950,000.00 | 2,000,000.00 | 1,950,000.00 |
Deductions: | |||
80C | 0.00 | 0.00 | 0.00 |
80D | 0.00 | 0.00 | 0.00 |
80CCD(1B) | 0.00 | 0.00 | 0.00 |
Gross Total Income | 1,950,000.00 | 2,000,000.00 | 1,950,000.00 |
Tax on total income: | |||
Upto 2,50,000 | 0.00 | 0.00 | 0.00 |
2,50,001 - 3,00,000 | 2,500.00 | 2,500.00 | 0.00 |
3,00,001 - 5,00,000 | 10,000.00 | 10,000.00 | 10,000.00 |
5,00,001 - 6,00,000 | 20,000.00 | 10,000.00 | 5,000.00 |
6,00,001 - 7,50,000 | 30,000.00 | 15,000.00 | 15,000.00 |
7,50,001 - 9,00,000 | 30,000.00 | 22,500.00 | 15,000.00 |
9,00,001 - 10,00,000 | 20,000.00 | 15,000.00 | 15,000.00 |
10,00,001 - 12,00,000 | 60,000.00 | 40,000.00 | 30,000.00 |
12,00,001 - 12,50,000 | 15,000.00 | 10,000.00 | 10,000.00 |
12,50,001 - 15,00,000 | 75,000.00 | 62,500.00 | 50,000.00 |
Above 15 Lakh | 135,000.00 | 150,000.00 | 135,000.00 |
Total Income tax | 397,500.00 | 337,500.00 | 285,000.00 |
Cess | 15,900.00 | 13,500.00 | 11,400.00 |
Total taxes payable | 413,400.00 | 351,000.00 | 296,400.00 |
Net advantage / (disadvantage) vs Old regime | 62,400.00 | 117,000.00 |
As soon as we include deductions up to INR 3,75,000 in any form in the above table, the new proposed slabs in the new regime becomes neutral. Any more deductions than this, would mean that even the new slabs in the new tax regime are not beneficial to the assessee. These aspects need to be factored in when making the selections for FY 2023-24.
Conclusion (Our view):
Probably the measures on the personal income tax front may appear to be bit of a disappointment and one would expect them to make the New income tax regime more attractive. This could take some time as the regime is quite new and we are confident that we will see changes based on industry feedback.
However, like all previous budgets, the government is continuing its push towards more and more infra development, along with an attempt to improve the ease of compliance through various measures.
It is a growth oriented budget, with a clear path laid out to move towards the goal of becoming a developed country, while at the same time, continuing on a path of fiscal consolidation to strengthen the economy.
Footnotes:
Links to Budget Speech, Budget memo, Finance bill.
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