UNION BUDGET 2023
1st February 2023
Issue No.17/22-23
KEY ASPECTS OF THE UNION BUDGET 2023-24
On 1st February, Smt. Nirmala Sitharaman, the Finance Minister of India, presented the union budget (“Budget”) for the financial year 2023-24. The Finance Minister commenced her speech with hopes to build this Budget on the foundation laid down by the previous budget. The Finance Minister stated that the current year’s economic growth was estimated at 7%, noting that it was the highest among the major economies inspite of the massive slow down globally caused by the Covid-9 pandemic and a war between nations.
The Budget adopts 7 priorities that complement each other which are – Inclusive Development, Reaching the Last Mile, Infrastructure and Investment, Unleashing the Potential, Green Growth, Youth Power and the Financial Sector. The following summary focuses on the three aspects i.e. Corporate and Commercial aspect, Real Estate aspect and Labour and Employment aspect.
CORPORATE AND COMMERCIAL ASPECT
1. Micro, Small and Medium Enterprises (“MSME”) are an important sector for the Indian economy and have contributed immensely to the country’s socio-economic developments. It not only generates employment opportunities but also works hand in hand towards the development of the nation. In order to encourage the growth of MSMEs, the Finance Minister has proposed the following benefits:
a. The Credit Guarantee Scheme for MSME was launched by the Government of India to make available collateral free credit to micro and small enterprise sector. The revamped scheme shall take effect from 1st April, 2023 by infusing an additional sum of Rs. 9,000 crores in the corpus. This shall enable an additional collateral free guaranteed credit of Rs. 2 lakh crores. This shall also result in reduction in cost of credit by 1%.
b. A relief by returning 95% of the forfeited amount relating to the bid or performance security by the government and government agencies to such MSMEs which had failed to execute contracts during Covid period.
2. As part of Government of India’s ease of doing business initiatives, following are the propositions made in the budget:
a. To simplify, ease and reduce cost of compliance. Financial sector regulators will be requested to carry a comprehensive review of existing regulations.
b. More than 39,000 compliances have been reduced and more than 3,400 legal provisions have been decriminalized.
c. For all the business establishments that are required to have a Permanent Account Number (“PAN”), such PAN shall be used as the common identifier for all digital systems of specified government agencies. This shall be facilitated through a legal mandate.
d. A central processing center will be setup for faster response to companies through centralized handling of various forms filed under Companies Act.
3. DigiLocker is a flagship initiative of Ministry of Electronics & IT (“MeitY”) under Digital India programme. DigiLocker aims at ‘Digital Empowerment’ of citizen by providing access to authentic digital documents to citizen’s digital document wallet. Pursuant to the budget, the scope of the DigiLocker shall be expanded by setting up and entity DigiLocker for use of MSMEs, large businesses and charitable trusts. This shall enable storing and sharing documents online securely, whenever needed, with various authorities, regulators, banks and other business entities.
4. Pursuant to section 124 of the Companies Act, 2013, where dividend has been declared by the company but has not been paid or claimed within 30 days of the date of declaration, the company shall within 7 days from the date of expiry of the said period, transfer such dividend which remains unpaid or unclaimed to a special account, to be called the Unpaid Dividend Account. Any money transferred to Unpaid Dividend Account of the company and remains unclaimed for a period of 7 years, such money and the shares in respect of which such dividend is unclaimed is to be transferred to Investor Education and Protection Fund.
In order to make it convenient for the investor to reclaim such unclaimed shares and dividend, the Budget has now proposed the establishment of an Integrated IT portal.
5. An International Financial Service Centre (“IFSC”) is a center serving as an international financial platform for the entire region and the global economy as a whole and deals with flows of finance, financial products, and services across borders. The primary objective of an IFSC is to develop a strong global connection.
The Finance Minister in the Budget has announced following measures in order to enhance the business in Gujarat International Finance Tec-city (“GIFT”):
a. Delegating the powers to IFSCA under the SEZ Act to avoid dual regulation;
b. Setting up a single window IT system for registration and approval from IFSCA, SEZ authorities, GSTN, RBI, SEBI and IRDAI;
c. Amendment to International Financial Services Centres Authority (“IFSCA”) Act for statutory provisions for arbitration, ancillary services, and avoiding dual regulation under the Special Economic Zone (“SEZ”) Act;
d. Establishing a subsidiary of EXIM Bank for trade re-financing and allowing acquisition financing by IFSC Banking Units of foreign banks.
REAL ESTATE ASPECT
1. Capital Gains on investment in residential houses:
The existing provisions of Section 54 and Section 54F of the Income-tax Act, 1961 allows deduction on the capital gains arising from the transfer of long-term capital asset if a taxpayer, purchases or constructs any residential property in India. The primary objective of the Section 54 and Section 54F was to mitigate the acute shortage of housing, and to give impetus to house building activity. However, it was observed by the government that claims of huge deductions by high-net-worth taxpayers are being made under these provisions, by purchasing very expensive residential houses. It is defeating the very purpose of these Sections. In order to prevent this, the Budget proposed to impose a cap on the maximum deduction that can be claimed by the assessee under Section 54 and Section 54F of the Income-tax Act, 1961 to rupees ten crore.
2. Clarity regarding certain provisions relating to JDA taxation:
As per the existing provisions of the Income-tax Act, 1961, for computing the capital gains arising to a tax-payer (individual and HUF) on transfer of land or building (or both) under a Joint Development agreement (“JDA”), consideration is taken as the stamp duty value of his share along with any consideration received in ‘cash’. It was noticed that the taxpayers are taking position that any amount of consideration received in a mode other than cash, i.e., cheque or electronic payment modes would not be included in the consideration. This was not in accordance with the intention of law. Accordingly, it is proposed to amend the provisions of Sub-Section (5A) of Section 45 to provide that the consideration shall be taken as the stamp duty value of his share plus any consideration received in cash or by a cheque or draft or by any other mode.
LABOUR AND EMPLOYMENT ASPECT
1. Leave Encashment benefits:
The Budget today discussed aspects of leave encashment benefits availed by employees. It raised the prior Rs. 3 Lakhs limit for tax exemption to a new limit of Rs. 25 lakhs. The Finance Minister elaborated on the last time’s exemption that was fixed in the year 2002, saying that the highest basic pay in the government was Rs. 30,000/- pm. In order to have the limit in line with the increase in government salaries, the Budget this year proposed to increase this limit to Rs. 25 lakh.
2. EPF:
The Finance Minister started by reflecting upon the increase in EPFO (‘EPFO”) membership by stating that the economy had become a lot more formalized as seen in the EPFO membership more than doubling to a total of 27 crore.
A member with the Employees’ Provident Fund Organsiation is liable to pay Tax Deducted at Source (“TDS”) on withdrawal of his Employees’ Provident Fund (“EPF”) if his term of service is less than five years and the accumulated amount in the his EPF account exceeds Rs. 50,000.
Earlier, on non-submission of PAN, the TDS was at the rate of 34.60%.
The Budget now proposes that the TDS rate is to be reduced from 30% to 20% on the taxable portion of EPF withdrawals in non-PAN submission cases.
3. Skill India Digital Platform:
The Budget initiated the launch of a unified Skill India Digital platform that would create an expansion of the digital ecosystem for skilling. This initiative provides for:
• enabling demand-based formal skilling;
• linking with employers including MSMEs;
• facilitating access to entrepreneurship schemes.
4. National Apprenticeship Promotion Scheme:
The National Apprenticeship Promotion Scheme is a scheme launched on 19th August 2016 by the Government of India to provide financial support to establishments undertaking the apprenticeship training.
The Budget provides for Direct Benefit Transfer under a pan-India National Apprenticeship Promotion Scheme that is to be rolled out. It further intends to provide for stipend support to 47 lakh youth in three years’ time.
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