Union Budget

2023 - Direct Tax

Highlights

Finance Team

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Budget 2023 - Key tax announcements
We have summarized some of the key tax announcements made
in the Budget. As outlined by the FM, the tax proposals aim to
maintain continuity and stability of taxation, further simplify
and rationalize various provisions to reduce the compliance
burden, promote the entrepreneurial spirit and provide tax
relief to citizens. These changes will be applicable from April 1,
2023, once approved in the parliament.

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Revised Income Tax Slabs and Increase in the Rebate limit for New Tax Regime

The tax structure in the New Tax Regime has been changed by reducing number of slabs to five and
increasing the tax exemption limit to INR 3 lakhs from existing 2.5 lakhs. This will provide major
relief to all taxpayers in the new regime.

Increase in the Rebate limit for New Tax Regime: The rebate limit in the new tax regime has been
increased to INR 7 lakhs, meaning that taxpayers in the new tax regime with income up to INR 7
lakhs will not have to pay any tax. If taxable income is crossing 7 lakhs tax will be required to be
paid as per above slab rates.

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Standard Deduction applicability for New Tax Regime
Standard deduction of INR 50,000 to salaried individual, and deduction from family pension up to
INR 15,000(subject to 1/3 of pension), is currently allowed only under the old regime. It is proposed
to allow these two deductions under the new regime also.

Increase in Leave Encashment exemption limit

Encashment of earned leave up to 10 months of average basic salary, at the time of retirement in case
of an employee (other than an employee of the Central Government or State Government), is exempt
under sub-clause (ii) of clause (10AA) of section 10 of the Income Tax Act (“the Act”) to the extent
notified. The maximum amount which can be exempted is INR 3 lakhs at present. It is proposed to
issue notification to extend this limit to INR 25 lakhs.

New Tax Regime to be the default Regime

The new tax regime for Individual and HUF, introduced by the Finance Act 2020, is now proposed to
be the default regime. Any individual not willing to be taxed under the new regime can opt to be
taxed under the old regime.

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Decrease in the Surcharge for New Tax Regime

Surcharge on income tax under both old regime and new regime is 10 per cent if income is above INR
50 lakhs and up to INR 1 crore, 15 per cent if income is above INR 1 crore and up to INR 2 crores, 25
per cent if income is above INR 2 crores and up to INR 5 crores, and 37 per cent if income is above
INR 5 crores.

It is proposed that for those individuals under the new regime, surcharge would be same except that
the surcharge rate of 37 per cent will not apply. Highest surcharge shall be 25 per cent for income
above INR 2 crores. This would reduce effective tax rate from 42.7 percent to 39 percent. No change in
surcharge is proposed for those who opt to be under the old regime.

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Other Highlights:

1. Withholding tax on payment of accumulated balance of Employee Provident Fund (‘EPF’) due to employees: It is now
proposed to omit the provision requiring withholding tax rates to employees not having a PAN and aligning it with the
general provision of withholding tax for non-PAN cases at the rate of 20%

2. Income Tax slabs, rates, surcharge, cess and rebate remain unchanged under the old tax regime.

3. Method of ascertaining perquisite value of rent free/ concessional accommodation to be prescribed.

4. Maturity proceeds (i.e. other than proceeds received upon death) from a life insurance policy (other than a Unit Linked
Insurance Policy (ULIP)) issued on or after 01 April 2023 is taxable, if the aggregate annual premium (on all policies
except ULIP) exceeds INR 500,000 in any of the tax years during the term of any of those life insurance policies.

5. Exemption from re-investment of capital gains in the purchase of a new property to be capped to a value of Rs 100
million (currently no cap).

6. Conversion of physical gold into Electronic Gold Receipt / vice versa not to result in capital gains taxes.

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