Key highlights of Union Budget 2023-24

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Key highlights of Union Budget 2023-24

Tejasvi

@tejasvi

February 2, 2023

Public Policy

921

The Union Budget 2023-24 (Budget) lays strong emphasis on technology-driven and knowledge-based economy with strong public finances, and a robust financial sector. Amidst the growing fear of slowdown and global recession, the Budget is growth oriented. The budget focuses on three key transformational trends that will help build India its competitive advantage - Digital Transformation, Energy Transformation, and Supply Chain Resilience. While on Energy transformation, there are clear proposals provided in the Budget, for the other two, various proposals have to be read in conjunction including Digital Public Infrastructure for Agriculture, 5G labs, Centres of Excellence on AI, simplifying KYC, expanding the scope of Digilocker, unified filing, skilling, etc.
The seven identified priorities in the Budget are: Inclusive Development, Reaching the Last Mile, Infrastructure and Investment, Unleashing the Potential, Green Growth, Youth Power and Financial Sector.
The budget aims to work towards these priorities through capital investment outlay, which will be raised by 33% to INR 10 lakh crore, 3.3% of the GDP in Financial Year (FY) 2023-2024. This is important to build physical infrastructure as it builds up the digital infrastructure. Importantly, the budget also attempts to lower the fiscal deficit from 6.4% in FY 2022-23 to 5.9% in FY 2023-24 – in line with the path of fiscal consolidation announced in 2021-22. The budget outlines India’s plan to become an engine for global growth and deploy digital as leading India’s development, along with a focus on talent and sustainability.

Highlights of Union Budget 2023-24:

Start-ups:

Tax holiday for startups – Income tax holiday for start-ups under S. 80-IAC of Income Tax Act, 1961 (IT Act) has been extended by 1 year. Accordingly, start-ups incorporated till March 31, 2024, will be eligible to avail income tax holiday for 3 consecutive years out of 10 years from incorporation. This announcement is in line with NASSCOM’s recommendation.

Carry forward and set-off of losses – Eligible start-ups will be allowed to carry forward and set off losses incurred within 10 years of incorporation (instead of 7 years). This announcement is in line with NASSCOM’s recommendation.

Agriculture Accelerator Fund to encourage agri-startups in rural areas: The Fund will aim at bringing innovative and affordable solutions for challenges faced by farmers. It will also bring in modern technologies to transform agricultural practices, increase productivity and profitability.

Ease of Doing Business

Simplification of Know Your Customer (KYC) process by adopting a ‘risk-based’ instead of ‘one size fits all’ approach. The financial sector regulators will also be encouraged to have a KYC system fully amenable to meet the needs of Digital India.
Digilocker:
- For individuals: Proposal to establish a one stop solution for reconciliation and updating of identity and address of individuals maintained by various government agencies, regulators and regulated entities using DigiLocker and Aadhaar as foundational identity.
- Entity DigiLocker will be set up for use by MSMEs, large business and charitable trusts for storing and sharing documents online securely with various authorities, regulators, banks and other business entities.
- Fintech: To enable more Fintech innovative services, the scope of documents available in DigiLocker for individuals will be expanded.
Permanent Account Number (PAN) to be the common business identifier: This will bring ease of doing business and it will be facilitated through a legal mandate.
Unified Filing Process: Proposal to set up a system unified filing process for filing of information or return in simplified forms on a common portal. Filer’s will have the choice to share with other agencies.
Proposal to set up Central Processing Centre for faster response to companies through centralised handling of various forms filed with field offices under the Companies Act.
Vivad se Vishwas I – Relief for MSMEs: In cases of failure by MSMEs to execute contracts during Covid-19, budget proposes to return 95% of the forfeited amount relating to bid or performance security. This will provide relief to MSMEs.
Vivad se Vishwas II – Settling Contractual Disputes: To settle contractual disputes of government and government undertakings wherein arbitral award is under challenge in a court, Budget proposes to introduce a voluntary settlement scheme with standardised terms. This will be done by offering graded settlement terms depending on the pendency level of the dispute.

Emerging Technology

5G Services: Proposal to set up 100 labs in engineering institutions for developing applications using 5G services such as smart classrooms, precision farming, intelligent transport systems and health care applications.
Centres of Excellence (CoEs) for Artificial Intelligence (AI): Proposal to set up 3 three CoEs in top educational institutions in partnership with the industry. This will galvanize an effective AI ecosystem and nurture quality human resources in the field.

Financial Sector

National Financial Information Registry: Budget proposes to introduce a legislative framework in consultation with the Reserve Bank of India (RBI) for setting up National Financial Information Registry as the central repository of financial and ancillary information. This will facilitate the flow of credit and promote financial inclusion.
Financial Sector Regulations:
- To facilitate optimum regulation in the financial sector, public consultations will be done for regulation-making and issuing subsidiary directions.
- To simplify and reduce the cost of compliance, financial sector regulators will carry out a comprehensive review of existing regulations. This will include suggestions from public and regulated entities.

Skilling

Skilling in emerging tech: Pradhan Mantri Kaushal Vikas Yojana 4.0 will be launched to skill youth within the next 3 years in new age courses like coding, AI, robotics, mechatronics, IOT, 3D printing, drones, and soft skills. To skill youth for international opportunities, Budget proposes to set up 30 Skill India International Centres across different States.
Skill India Digital Platform: Proposal to expand the digital ecosystem for skilling with the launch of a unified Skill India Digital platform for enabling demand-based formal skilling, linking with employers including MSMEs, and facilitating access to entrepreneurship schemes.

Green Growth

The government also reiterated its commitment to green growth. Focus on green fuel, green energy, green farming, green mobility, green buildings, green equipment, and policies for efficient energy use across various economic sectors is indeed the need of the hour. Allocating INR 35,000 crores towards achieving net zero goals and energy transition is commendable.
To further provide impetus to green mobility, customs duty exemption is being extended to import of capital goods and machinery required for manufacture of lithium-ion cells for batteries used in electric vehicles.
For encouraging behavioural change, a Green Credit Programme will be notified under the Environment (Protection) Act. This will incentivize environmentally sustainable and responsive actions by companies, individuals and local bodies, and help mobilize additional resources for such activities.
Budget provides ` 35,000 crore for priority capital investments towards energy transition and net zero objectives, and energy security by Ministry of Petroleum & Natural Gas.
To steer the economy on the sustainable development path, Battery Energy Storage Systems with capacity of 4,000 MWH will be supported with Viability Gap Funding.

Direct Taxation

To clear bottleneck at Commissioner of Income Tax (Appeals) [CIT(A)], Budget proposes to introduce S. 246 whereby a taxpayer aggrieved by specified orders of Assessing Officer (AO) below the rank of Joint Commissioner may file an appeal before Joint Commissioner (Appeals). The scheme is yet to be notified.
Tax deduction under S.10AA of IT Act will be available only if return of income is filed within due date prescribed under S. 139(1). Further, the deduction will be available only if export proceeds are realised within 6 months from the end of the previous year or such an extended period as may be allowed by the RBI. We are analysing this provision in detail to understand the impact on the Industry.
Time limit for completion of assessment proceedings for Assessment Year (AY) 2022-23 shall be 12 months from the end of relevant AY (as against 9 months for the immediately preceding AY).
Time limit prescribed for furnishing return in response to a notice under S. 148 is three months from the end of the month in which such notice is issued or within such further time as may be allowed by AO on the request of the taxpayer. Any return furnished beyond the allowed period shall not be deemed to be a return under section 139 of the Act.

Rationalisation of tax provisions

Provisions of S. 56(2)(viib) of IT Act, commonly referred to as Angel Tax, extended to consideration received from non-residents for issue of shares. We are analysing this provision to understand the impact on startups.
In line with earlier circulars, S. 194R amended to clarify that it shall apply to benefit or perquisite, whether in cash or in kind or partly in cash and partly in kind. Consequent amendment also made in S. 28 to align it with S. 194R.
Penalty under S. 271C and prosecution under S. 276B introduced on failure to ensure payment of tax under first proviso to S. 194R (where benefit in cash is not sufficient to meet TDS liability)
Where income has been offered to tax in a preceding AY and tax has been deducted at source subsequently, option available with taxpayer to claim tax credit of the same in the AY in which income was offered to tax. The application should be made in prescribed form by the taxpayer within 2 years from the end of FY in which tax is deducted.
S. 15 of Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) mandates payments to MSMEs within the time prescribed under written agreement (not exceeding 45 days)/ 15 days (if there is no written agreement). It is proposed that any sum payable to micro or small enterprises beyond the prescribed time limit will be allowed as a deduction only on an actual payment basis under S. 43B. Further, the benefit of proviso to section 43B (which provides for allowability of deduction in a previous year, even if the payment has been made till the due date of filing of return of income of such previous year) will not be available in this case.
Similar to goodwill, cost of acquisition and cost of improvement of all intangible assets or any sort of right shall be considered as nil.
Persons who are not required to furnish income tax return for a particular AY are excluded from the provisions of S. 206AB and 206CCA (higher TDS/ TCS on non-filers of return) subject to notification by the Central Government in the Official Gazette
A new provision has introduced for taxability and TDS on net winnings from online gaming.
S. 94B imposes limits on interest deduction on borrowings from foreign Associated Enterprises (AE), with a carve-out for banks. The relaxation is now proposed to be extended to Non-Banking Finance Corporations (NBFCs), in addition to banks,

Transfer pricing

Transfer pricing information/ documents is now to be filed within a reduced time of 10 days (instead of 30 days) from the date of receipt of notice from AO/CIT(A), (which can be further extended to 30 days on an application to AO/CIT(A)).

Indirect taxes

Goods and Services Tax (GST)

Composition dealers supplying goods can make supplies through E-Commerce Operators (ECO) - Amendments proposed in Central Goods and Services Tax Act, 2017 (CGST Act) to remove restriction imposed on registered persons engaged in supplying goods through ECO from opting to pay tax under the composition scheme.
Input Tax Credit (ITC) restriction and reversal of ITC – Amendments proposed in CGST Act to:
include certain transactions specified in para 8(a) of Schedule III (supply of warehoused goods to any person before clearance for home consumption) in the value of exempt supply and require reversal of ITC thereafter in relation to such transactions.
specifically provide that ITC shall not be available in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in S.135 of Companies Act, 2013.
Retrospective amendment to provisions to grant exemption from liability to register under GST – Proposal to allow Government to notify categories of taxpayers who are not required to register but subject to conditions and restrictions as maybe specified.
Time-limit to furnish GSTR-1, GSTR-3B, Annual returns and GSTR-8 – Amendments proposed to provide a time limit of 3 years to furnish certain GST returns. The Government will be empowered to notify categories of persons to whom such restriction will not apply.
Penal consequences for ECO as a follow up to the announcement by GST Council to allow unregistered persons and composition dealers to make intra-state supplies through ECO - Sub-section (1B) is proposed to be inserted in S.122 of CGST Act to provide that any ECO who:
allows a supply of goods or services or both through it by an unregistered person other than a person exempted from registration through a notification or an order issued under this Act to make such supply through an electronic commerce operator;
allows an inter-State supply of goods or services or both through it by a person who is not eligible to make such inter-State supply; or
fails to furnish the correct details in the statement to be furnished under sub-section (4) of section 52 of any outward supply of goods effected through it by a person exempted from obtaining registration under the provisions of this Act,

shall be liable to pay a penalty of Rs. 10,000/- or an amount equivalent to the amount of tax involved considering the said supply to have been made by a registered person, other than a person paying tax under section 10, whichever is higher.

Decriminalising and compounding of offences - It is proposed to amend S. 132 of CGST Act:

to exclude offences relating to obstructing an officer in discharging his duties, tampering or destroying evidence, failure to provide information sought by authorities from prosecution under CGST Act by deleting the said clauses.
Increasing the threshold for launching prosecution from current Rs 1 crore to Rs 2 crores, except for the offences related to issuance of invoices without supply of goods or services or both, by amending the clause (iii) of sub-section (1).
Allow sharing of data by GSTN with specified agencies with the consent of the supplier and the recipient – Proposal to introduce a new section 158A in CGST Act to allow sharing of data by GSTN with the consent of the supplier and the recipient. The exact mode of obtaining consent and sharing of data will be prescribed in the CGST rules.
Online Information Database Access and Retrieval services (OIDAR) - Non-resident suppliers to rely on customer GSTIN, otherwise GST liability on forward charge - It is proposed to amend definition of non-taxable online recipient to
remove the condition that service recipient uses the OIDAR services for any purpose other than commerce, industry or any other business or profession;
include persons registered solely in terms of clause (vi) of Section 24 of CGST Act under the expression “unregistered person”;

Further, OIDAR definition is proposed to be amended to remove the condition that the supply of such service must be essentially automated and should involve minimal human intervention.

Customs

S. 25(4A) which provides that the exemption notifications issued under the Customs Act, 1962 are only valid for 2 years, is proposed to be amended to extend the exemption to certain categories such as FTAs, bilateral trade agreements, etc. beyond the restricted period of 2 years.
S. 127C is proposed to be amended to the effect that order by Settlement Commissioner shall be passed within 9 months from the date of making application under section 127B, and if no order is passed within the said period, the settlement proceeding shall abate, and the case shall be reverted to the adjudicating authority.

In terms of misses, for startups, a holistic set of measures for easing tax compliances related to better talent management and raising capital did not reflect in the budget announcements. Further, our transfer pricing related suggestions were also not taken up in the budget. On transfer pricing, we expect these to be taken up later during the year. On the start-up related points – we will assess and understand the government’s position regarding the suggestions.

NEXT STEPS:

NASSCOM will soon be submitting a detailed post budget memorandum highlighting concerns and recommendations to strengthen the Budget proposals. Request you to send your inputs at the earliest to tejasvi@nasscom.in.

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