Union Budget 2023: Growth-oriented with tax stability and rationalisation

Union Budget 2023 delivers on the growth-oriented agenda and has sought to provide stability and continuity on the tax front. If one looks at the fine print, there are no glaring surprises and no tinkering with capital gains taxation. It has sought to rationalise tax provisions, some of which are discussed hereunder.

Middle-class taxpayers have a reason to cherish

Providing relief to individual taxpayers under the new regime (effective tax of only 10 per cent on an income of Rs 15 lakh), limiting surcharge under the new regime for individuals (resulting in an effective tax rate of 39 per cent vs the existing 42.74 per cent), extending standard deduction benefit to a salaried class, even under the new regime are all welcome steps. These steps will provide much-needed relief and support to the aspirational middle-class population.

Restricting Section 54 and 54F deduction (for investment in new residential house property) to a maximum of Rs 10 crore and taxing insurance receipts for new policies taken post April 1, 2023, where total premium exceeds Rs 5 lakh, are measures taken to rationalise the benefits.

Non-resident investors face a valuation conundrum

As per the foreign exchange control regulations, a non-resident investor has to invest at or above the fair market value of the Indian companies. The Budget now proposes to tax the difference between the actual consideration for shares issued at a premium and the fair value (if the actual consideration exceeds the fair value), in the hands of the closely-held company, for investment by non-resident investors, as well. One would now need to factor valuation provisions of both foreign exchange regulations and the income-tax law, indicating a tightrope walk.

Directing inventory valuation: Hopefully, in limited situations only

In the course of tax proceedings, the tax officer, regarding the nature and complexity of accounts and the volume of accounts, doubts the correctness of accounts, considering the specialised nature of the business activity. In that case, they may, with appropriate approvals, direct the taxpayer to get either or both of the following – get the accounts audited by nominated chartered accountants or get the inventory valued by nominated cost accountants. This may have a far-reaching impact on the taxpayers if not used discreetly.

Overall, the Union Budget has maintained the status quo on tax policies with more thrust on certainty, which is a step in the right direction.

The writer is partner, Price Waterhouse & Co LLP

Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.

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