Highlights of the Direct Taxation Budget for 2023

The income tax slabs under the new tax system have changed as a result of Budget 2023. Under the new tax system, the government increased the basic income exemption ceiling from Rs 2.5 lakh to Rs 3 lakh. In addition, the government raised the threshold for rebate eligibility under the new tax system from Rs 5 lakh to Rs 7 lakh in taxable income through Section 87A. In practice, this means that anyone choosing the new tax system in FY 2023–24 will pay no taxes as long as their taxable income is less than Rs 7 lakh.

What distinguishes the proposed tax regime from the current one?

In her address introducing the Budget 2023, Finance Minister Nirmala Sitharaman “In the year 2020, I had enacted a new personal income tax system with six income tiers beginning at Rs 2.5 lakh. By decreasing the number of tax slabs to five and raising the threshold for tax exemption to Rs 3 lakh, I propose to alter the tax system under this regime.”

New Income Tax Slabs under the New Regime

The income tax slabs under the new tax regime for FY 2023-24 are as follows:

Up to Rs. 3,00,000: Nil

300,000 to Rs. 6,00,000: 5% on income that exceeds Rs 3,00,000

6,00,000 to Rs. 900,000: Rs 15,000 + 10% on income more than Rs 6,00,000 9,00,000 to Rs. 12,00,000: Rs 45,000 + 15% on income more than Rs 9,00,000 12,00,000 to Rs. 1500,000: Rs 90,000 + 20% on income more than Rs 12,00,000 Above Rs. 15,00,000: Rs 150,000 + 30% on income more than Rs 15,00,000

What is the Default Tax Regime?

The new tax regime is now the default tax regime” denotes that the old taxation system has been superseded and that the new system is now the accepted way to calculate and collect taxes. It indicates that, unless they specifically opt-out and want to follow a different system, people and businesses are now compelled to abide by the laws and norms of the new tax regime. The term “default” implies that, unless otherwise indicated, the new tax regime is the default option and the default setting for taxation.

2. Under the previous tax system, Section 87A provided an income tax exemption for anyone with net taxable incomes up to INR 5 lakh. This ceiling has been raised to INR 7 lakh in the 2018 budget, but only for individuals who choose the new tax system. The threshold for Section 87A’s income tax exemption remains at INR 5 lakh if you choose the old tax system.

   What distinguishes the Old Tax Regime from the New Tax Regime?
   For investments in certain funds, you could deduct up to INR 2 lakh under Chapter VI-A deductions like 80C, 80CCC, and 80CCD under the previous tax system. Other tax breaks are also available to you, including 80D for medical insurance, 80E for interest on student loan debt, House Rent Allowance, LTA, etc.

However, under the new tax law, none of the aforementioned deductions are available to you.

3. Updated Presumptive Taxation Limits: For Section 44AD (for professionals) and Sec 44ADA (for small enterprises), the presumptive taxation limits have been changed to Rs 3 crore and Rs 75 lakh, respectively. The requirement that 95% of the receipts come from online sources governs the increase in limits.
4. Start-ups: The deadline for incorporation for tax benefits has been moved to March 31, 2024, and the window for loss carryover and set-off has been extended to ten years from the date of incorporation.
5. Co-operative Societies: The government has put forth a number of proposals for co-operative societies, including the extension of the 15% tax rate concession to new cooperatives, the ability to disclaim expenses incurred prior to 2016–17, an increase in the TDS limit on cash withdrawals to Rs. 3 crores, and a cap on cash deposits and loans made by Primary Agricultural Co-operative Societies (PACS) and Primary Cooperative Agriculture and Rural Development.
6. Additional direct tax updates include an increase in the leave encashment exemption threshold to Rs. 25 lahks , a 20% TDS reduction on taxable EPF withdrawals, the restriction of the capital gains tax exemption under Sections 54 to 54F to Rs. 10 crores, and the change that payments to MSMEs are now only permitted as expenses when they are actually made.

We anticipate that this article will provide readers with a thorough knowledge of the budget’s key points regarding direct taxation.