Where’s The Money, Honey?

"Where’s the money, honey?" is a common question asked by the great Indian Middle Class when it comes to the India budget. The India budget is like the ultimate birthday gift for the country. Everyone's waiting with bated breath to see what goodies the government has in store. But the middle class, bless their hearts, they're like the "best friend" of the country, always there to support and keep things lively. So, you better believe they will have a lot to say and react to on the budget. We'll be exploring their hopes (you know they have high expectations), their expectations (they always expect the best), and their concerns (they can be drama queens at times). Whether you're a member of the middle class yourself or just a curious bystander, it is a journey into the minds of the people who keep the country's economy ticking. So, when it comes to the budget, it's all about "Where is the money, honey?" and making sure it's being used in the best possible way.

1. Presumptive Taxation for MSMEs & Professionals

Currently, Micro enterprises with turnover up to ₹ 2 Cr and certain professionals with turnover of up to ₹ 50 lakh avail the benefit of presumptive taxation. In this budget, it is proposed to enhance the limit to ₹ 3 cr. and ₹ 75 lakh respectively, if cash receipts are not more than 5%. This will ease compliance and promote non-cash transactions and benefit professionals offering consultation services.

2. Tax exemption in capital gains from Land/Building capping at 10Cr

Currently, capital gains arising from sale of land/building were exempted if the proceeds were reinvested in another residential property. It is now proposed to put a cap of ₹ 10Cr. on such investments.
Usually, this exemption is misused to save capital gain tax on high value properties. This proposal will put an end to such loopholes in the regulation. This amendment will be in effect from 01-Apr-2024.

3. Interest on Home Loan

Currently, if a residential property is purchased using a home loan, the interest component is eligible for a deduction u/s 24 B up to ₹ 2L. However, this can also be included as cost of acquisition or improvement during the sale of property along with indexation benefit which reduces the capital gains.

It is a loophole in the regulation to save double taxation on the same amount. It is now proposed that the cost of acquisition or improvement shall not include the amount of interest claimed earlier as deduction. Going forward, only one of the following can be claimed,

1. Deduction u/s 24B
2. Inclusion in cost of acquisition

4. Insurance Policies with High Value

Currently, all insurance policies except ULIP fall under EEE category which means the maturity proceeds are tax exempted. They are usually being used more as a tax saving investment option rather than life insurance need. With the current amendment in the finance bill, it is now capped at an aggregate annual premium of ₹ 5 Lakhs.

In simple words, maturity proceeds from insurance policies issued after 31-Mar-2023 will not be tax exempt if the aggregate annual premium is more than ₹ 5 Lakh. We await further outcomes on the actual implication of this regulation especially in terms of calculating the proportionate maturity amount relating to annual premiums in excess of ₹ 5 lakhs.

5. Market Linked Debenture (MLD)

At present, long term capital gains from market linked debentures enjoy a capital gain tax of 10% just because it is linked to the market. Although most of the investments are in debt papers, it is treated as equity investment and hence taxed as an equity asset class. Due to the concessional tax benefit of 10%, these products have been mis-sold as tax saving instruments without disclosing the inherent risk.

It is now proposed to tax market linked debenture as short-term capital gains which simply means tax applies as per the individual tax slabs. This amendment will be in effect from 01-Apr-2024.

6. TDS on Listed Securities

At present, Interest income from listed securities is exempted from TDS and it is now proposed to withdraw this exemption, meaning all listed securities will attract TDS on payment of interest. We await more clarity on Tax Free Bonds.

7. Leave Encashment

Tax exemption for leave encashment during retirement was capped at ₹ 3L for non-govt. salaried employees. It was set in 2002 when the highest basic pay in govt was ₹ 30,000. There was a serious need to increase this limit. It is now proposed to enhance this limit to ₹ 25 lakhs to align with the current govt salaries.

8. Senior Citizen Savings Scheme (applicable for senior citizen)

Maximum investment limit has been increased from ₹ 15 lakh to ₹ 30 lakh. As a husband & wife – Totally, now ₹ 60 lakh can be invested in Senior Citizen Savings Scheme. It will be beneficial for middle class pensioners.

9. Post Office Monthly Income Scheme

Maximum investment limit has been increased from ₹ 4.50 lakh to ₹ 9 lakh. As a joint holding pattern – Totally, now ₹ 15 lakh can be invested in PO-MIS. It is applicable for both senior citizen as well as non-senior citizen.

10. Liberalized remittance scheme

The current and proposed TCS rates are tabulated as under

11. Allocation to Capital Expenditure

(key to economic development) increased by 33% YoY to ₹ 10 Lakh Cr. It is positive for markets due to expected high growth in various allied sectors i.e. banking, Capital goods, Infrastructure developers, Infra raw materials etc. With this, Fiscal deficit for FY23-24 (targeted at 5.90% of GDP) i.e. ₹ 11.8 Lakh Cr would be market borrowing. As per glancing of this number, we expect that G-Sec yields will be stable.

12. Reclaiming of shares and dividends

An integrated IT portal will be established for the investors to reclaim unclaimed shares and dividends from the Investor Education and Protection Fund Authority.

Changes related to New Tax Regime

There was a consensus that the govt would bring some changes in personal income tax to make new tax regime more attractive and rightfully so, following changes are proposed in the finance bill 2023.

1. The new tax regime will be set as default for Individuals and HUF. Any individuals or HUF not willing to be taxed under new regime will have the option to be taxed under old regime.
2. Currently, resident individuals having total income up to ₹ 5L do not pay tax due to rebate under both old & new regime. It is now proposed to increase the threshold limit to ₹ 7 lakh in the new regime.
   
   Please note, IT IS NOT APPLICABLE FOR THE OLD TAX REGIME i.e. if any individual opts for old tax regime, the rebate will continue to be for total income up to ₹ 5 lakhs.
3. New slab rates - Under the new tax regime, the slab rates are changed as below;

Prima facie, with the above changes, the new tax regime looks attractive providing no deduction is claimed. However, if we consider various deductions available under old regime, it will differ from person to person. Read here in detail to know which regime would work for you.

4. Standard deduction - Currently, standard deduction of ₹ 50,000 is available to all salaried individuals under the old tax regime. It is now proposed to extend the benefit under new tax regime as well. It will again make the new regime attractive. This will make zero tax liability for the total income up to ₹ 7.5L in a FY.
5. Surcharge - At present, surcharge applicable to the highest slab is 37% which took the effective tax rate to 42.74% including cess. It is now proposed to reduce the highest surcharge to 25% and hence the highest effective tax rate will be 39% in FY 2023-24.

Other changes

1. TDS on EPF withdrawal reduced from 30% to 20% in case of Non-PAN withdrawal.
2. Conversion of Gold to EGR – Not considered as Capital Gain
3. REIT / InviT – Currently, the payouts from REIT/InviT are classified in three parts i.e Payout of dividends, Payment of interest and Payment of “Return of capital”. As per present tax practice, dividend & interest receipts are taxed and not “return of capital”. However, this budget proposes to tax all payouts received from REIT / InviT as per tax slab to eliminate the loophole prevalent earlier while exiting this REIT/InviT.