Budget 2023-24: Six key points from Nirmala Sitharaman’s proposals

While Finance Minister Nirmala Sitharaman’s Budget proposals had several hits and maybe a few misses, the overall sentiment towards the new Budget seems positive and hopeful- an important win for the economy. Hits and misses from Budget proposals Personal taxation  The Budget put forth several proposals for the benefit of taxpayers, which comes as a relief for middle-class, salaried citizens across the country. Allowing a standard deduction in the new tax regime is a very welcome move for taxpayers. The government has clarified that the new tax regime hereon will be their default regime, however, taxpayers will have the option to continue to select the old tax regime. This indicates that the old tax regime may be phased out in the next few years. The reduction in the rate of surcharge in income exceeding Rs 5 crore from 37 per cent to 25 per cent was unexpected but again, is a welcome move and directionally positive for high-income earners. An increase in rebate on tax on income up to Rs 7 lakhs will bring relief to millions of middle-class taxpayers which means that there will be more money in the hands of the average Indian taxpayer and this will hopefully increase consumption. Another move that is greatly appreciated is the proposal to raise the exemption limit for leave encashment from Rs 3 lakhs to Rs 25 lakhs for non-government salaried employees. As a potential dampener for life insurance companies, taxpayers who receive income from life insurance policies post April 1, 2023, where annual premium exceeds Rs 5 lakhs will be taxed at their slab rates except if the income is received on the death of the assured. Transforming DigiLocker Making PAN the common identifier and transforming Digi Locker to become a one-stop shop for updating KYC details is a tactically smart move as it will simplify the KYC process, ease transaction costs and improve customer experiences for digital India. Financial institutions will now be able to have a ‘risk-based’ KYC policy instead of a ‘one-size-fits-all’ which offers an additional measure of security. This also opens opportunities for fintech startups and account aggregators to marry technology with data to provide solutions to financial services companies. Presumptive taxation The threshold of total turnover or gross receipts for availing the presumptive taxation has been enhanced from Rs 2 crore to Rs 3 crore in case of eligible business enterprises, and from Rs 50 lakh to Rs 75 lakh in case of specified professional services as long as cash receipts do not exceed 5 per cent of the total turnover or gross receipts. In such cases, a tax audit is not applicable. This will incentivize businesses to record receipts electronically and reduce cash-based transactions. Tax deductions on payments to MSMEs  Companies shall be allowed tax deduction on payments to MSMEs as defined under the MSME Act only on a payment basis. The Budget has also clarified that the sum payable to micro and small enterprises can be allowed on an accrual basis only if the same is paid within the due date specified under the MSME Act. This is a very welcome move for MSMEs as it will help speed up their collections and reduce the strain on their working capital. Offshore Funds The sunset clause for claiming tax exemption for relocation of Offshore Funds and its unit holders/shareholders to IFSC has been extended to 31 March 2025. The venture capital, private equity, and startup ecosystem had a lot of expectations from the budget to resolve many long pending issues – taxation of ESOPs at the sale and not vesting, simplification of capital gains tax regime, non-applicability of GST on management fees, etc. Unfortunately, not much was said about these important factors. In last year’s Budget, the government announced the setting up of an expert committee assigned with the task of undertaking a comprehensive systemic study of the ‘end-to-end frictions’ and ‘potential accelerants’ from regulatory policy and taxation framework. This was done to facilitate ease of investing by VCs & PEs in India, but there was no update on the status of the Committee’s Report in the budget, which was a dampener for the sector. Tax relief for startups For all eligible startups (i.e. startups approved by Inter-Ministerial Board), there were several positives that are worth noting. Section 80-IAC of the Income-tax Act provides for a 100 per cent deduction of profits and gains generated by eligible start-ups incorporated on or before April 1, 2023, for three consecutive years out of ten years from the year of incorporation. This timeline has been extended to April 1, 2024, an incredibly well-received move by startups. Agriculture Accelerator Fund The announcement for the setting up of an Agriculture Accelerator Fund to encourage agri startups by young entrepreneurs in rural areas. The fund will aim to bring innovative and affordable solutions for challenges faced by farmers. It will also bring in modern technologies to transform agricultural practices, and increase productivity and profitability. For startups in the online gaming space, the Budget has clarified the applicability of TDS on winnings of more than Rs 10,000 in a financial year. The Budget will be introducing a new section for taxation of net winnings from online games at 30 percent and another section for online gaming platforms to undertake withholding of taxes on the net winnings. This clarity brings an added layer of transparency and certainty for startups. One disappointing aspect of Budget 2023 is the contentious issue of Angel tax i.e. Section 56(2)(viib) of the Income-Tax Act that provided for the levy of tax in the hands of private companies including start-ups (except IMB-recognized start-ups), where consideration for issue of shares is higher than fair market value. The scope of this section included only residents but this has now been expanded to cover non-residents also. All in all, the Budget 2023 can be commended for staying on course for fiscal consolidation and for implementing measures that will have a positive long-term impact for both the economy and common man. The writer is Director of Finance, at Antler India- a global early-stage venture capital investment platform. He tweets @AntlerIndia. Views expressed are personal. Read all the  Latest News,  Trending News,  Cricket News,  Bollywood News, India News and  Entertainment News here. Follow us on  Facebook,  Twitter and  Instagram.