Budget 2023: Consistency in tax provision and not too many nasty surprises

At a macro level, the containment of the fiscal deficit and the significant emphasis on capital spend were the two things that industry was looking for and both have been adequately met. Increased infrastructure spend and the allocation to the railways represents a quantum jump and not a mere nominal increase.

On the tax front, the proposition was that the government should not tinker too much, and I am glad the government has done just that.

On taxation of individuals, there was a reluctance by taxpayers to move to the new tax regime. The government has proposed to increase the threshold level of taxation to ₹3 lakh, reduce the number of slabs and reduce the overall tax, increase the tax rebate under Section 88 and reduce the maximum marginal rate of tax from 43% to 39%…all for those who opt for the new tax regime. This will clearly help make the new tax regime, which does away with deductions and exemptions, a default tax regime.
Interestingly, the tax-free limit for leave encashment for salaried employees has been increased from ₹3 lakh to ₹25 lakh.

The capital gains tax exemption limit for investment in residential houses has been capped at Rs 10 crore. This will ensure that buying a house is for genuine residential needs and not a tax planning avenue. It will indeed impact the luxury residential market.

Proceeds from life insurance policies (other than on death) where the annual premium exceeds Rs 5 lakh per annum will be taxable. This will make insurance polices a genuine life insurance product rather than a savings product.Another proposed amendment is taxation of gains on market-linked debenture. These will now be taxed at full rates as short-term capital gains rather than as listed securities taxed as long-term capital gains. Clearly, the gain on these debentures is in the nature of interest and ought to be taxable fully.

In a welcome move to reduce pendency of appeals, a new authority is being set up to expeditiously deal with smaller appeals. This was a big bottleneck which should hopefully be addressed soon.

Online gambling done digitally could provide gains which are difficult to track. A withholding tax is proposed to be introduced so that such gains are brought to tax.

There are several other changes proposed to remove administrative difficulties such as the ability to get TDS credit if there is a mismatch between the years where tax is deducted and the income offered to tax. These changes are indeed very welcome.

There are other anti-abuse changes, including taxation of gifts received by those who are not ordinarily resident, restricting deduction of donations given by one charity to another, and the like. These and others will indeed engage the minds of tax practitioners and taxpayers alike.

All in all, a very welcome budget with consistency in tax provision and not too many nasty surprises.