Taxmann's Budget Marathon | Corporate Taxation | E N Dwaraknath & Tapan Gupta – Partner | PwC

Tax proposals

and stability Promoting

Continuity

• No change in corporate tax rate

• Emphasis on rationalisation of laws and compliance

• Taxation of Start-ups

• Deduction on payments to MSMEs on actual payment basis

• Share issue to nonresidents

• Concessional 15% tax rate for new manufacturing cooperatives

• Capital gain taxation from Market Linked Debentures.

• Cost of Acquisition/ improvement of self generated intangible assets

• Clarifying tax treatment of online gaming

• Sunset clause for reduced tax rate under 194LC and 194LD

• ‘Benefit or perquisite’ to include cash benefits

• Business Trusts - Additional income to be taxed in the hands of unitholders.

• Faster disposal of small IT appeals

• Increased threshold for small businesses or professionals

• Additional conditions to claim 10AA deduction

• Inventory valuation during assessment proceedings

• Procedural amendments in the year of Business Reorganisation

• Amendment of timelines

Promoting entrepreneurship

Start-ups taxation

• Protection to carry forward and set off of losses in case of change in shareholding by more than 51% is extended from seven to ten years from incorporation – Amendment to align 10 years period as prescribed under the start-up tax holiday provisions.

• Timelines for incorporation of eligible startups to claim tax holiday extended by one year to March 31, 2024

MSME Expenditure – allowed on payment basis

• Any sum payable to micro and small enterprises allowable only on payment basis (applicable from FY 23-24)

• It is proposed to allow payments to MSMEs beyond the time limit specified in the MSME Act, 2006 on actual payment basis. If the payment is made after the end of the previous year, it is to be allowed only in the subsequent year even if it is paid before the due date of filing the tax return of the previous year.

• However, expenses paid within the statutory due dates as prescribed under the MSME laws can still be claimed on an accrual basis.

Promoting entrepreneurship

Concessional 15% tax rate for new manufacturing cooperatives

• Co-operative societies included to avail 15% tax rate for new manufacturing entity set up before 31 March, 2024

- Such co-operative societies will be subject to domestic transfer pricing

• AMT provisions not applicable to new manufacturing co-operative societies

Providing tax certainty / widening tax base

Market linked debenture (MLD)

• New provision is proposed to be inserted to tax capital gains from market-linked debentures as short-term capital gains at normal rate at par with securities (at the respective rates in force), which were earlier taxed at 10% as long-term capital gains (effective from FY 23-24)

• Tax withholding at 10% now applicable on payment or accrual of interest on listed securities to a resident – Exemption under section 193 withdrawn

Intangible assets or any other rights

• Cost of acquisition where no consideration is paid will be ‘Nil’ and Cost of improvement of any intangible asset or other right, will be ‘Nil’ –reversing the Apex Court ruling in the case of B.C. Srinivasa Shetty

• Possible impact on sale of intellectual property and related intangibles

Providing tax certainty / widening tax base

Taxation of winnings from online gaming

• ‘Net winnings’ from online games taxable @30% from FY 23-24

- Income computation mechanism to be prescribed

• Starting from 01 July 2023, WHT @30% to apply

- On withdrawal of winnings, or

- End of FY (whichever is earlier)

Sunset clause on Interest income

• Current TDS provisions under section 194LC/194LD provide for a concessional rate of withholding on interest payouts arising from government securities, long-term bonds including long-term infrastructure bonds and loan agreements executed prior to July 01, 2023

• No extension of sunset clause the said beneficial tax rates.

• Concessional rates to anyways apply for loans/bonds executed/issued upto July 01, 2023

Profits and gains from business & profession

• It is proposed to clarify that any benefit or perquisite arising from business or exercise of profession received in cash is also taxable in the hands of the recipient (applicable from FY 2023-24) – Supreme Court ruling principles may no longer apply

• Similarly, it is clarified that tax withholding (Section 194R) shall also apply on such cash benefits – In line with the recent Circulars

Providing tax certainty / widening tax base

Business Trust

• Currently, rental/interest/dividend income earned by unitholders of REIT/InvIT are directly taxable in the hands of the unitholders and are exempt in the hands of the REIT / InvIT.

• However, other distributions made to the unitholders (primarily arising on account of repayment of debt on loans granted to SPV’s) were not subject to tax at the trust/unitholders level resulting in double non-taxation.

• Repayment of loan by SPVs to REIT / InvIT and subsequent distribution to unitholders now taxable in the hands of unitholders as Income from Other Sources.

• In case of redemption of units, benefit of cost of acquisition can be availed Share issue to non-residents

• Share premium exceeding the FMV received from non-residents by a closely held company taxable [applicable from April 01, 2024]

• Imperative to ensure that any issue of shares by the closely held companies to non-resident shareholders are carried out at the FMV of the shares – Interplay with FEMA provisions

Providing tax certainty / widening tax base

Facilitating TDS Credit

• In cases where income is offered by a taxpayer on the basis of accrual in a year but tax on such income is deducted by the payer in the following year(s) at the time of payment, it is proposed to allow the taxpayer to make a claim of such TDS within two years from the end of the year in which such tax is withheld.

• The interest on income-tax refund arising from such a claim is to be allowed only for the period starting from the date of the claim.

Presumptive tax under section 44BB and section 44BBB of the Act

• Section 44BB and 44BBB of the Act provide for presumptive taxation schemes in the case of non-resident taxpayers carrying out eligible businesses such as mineral oils exploration, civil construction relating to turnkey power projects etc. Such taxpayers opt in and opt out of presumptive schemes to avail benefit of both presumptive scheme income and non-presumptive income.

• To avoid such misuse, the said section has been proposed to be amended w.e.f. AY 2024-25 to deny set off of unabsorbed depreciation and brought forward loss in the previous year in which assessee has offered income as per presumptive taxation scheme

Focus on compliance

Faster disposal of pending IT appeals

• For speedy disposal of pending appeals, a new appellate authority is proposed to be introduced - Joint Commissioner of Income Tax (Appeals)

Increased threshold for small businesses or professionals

• They will be handling appeals against assessment/reassessment orders, intimations, TDS/TCS proceedings orders, penalty orders issued by an assessing officer not above the rank of a Deputy Commissioner. Orders passed with prior approval of such authorities are also out of the said provisions.

• Threshold for small businesses to be taxed on presumptive basis at 6% or 8% is proposed to be increased from INR 20m to INR 30m where the aggregate amount received in cash does not exceed 5% of total turnover/gross receipts.

• Threshold limit for small professionals to be taxed on presumptive basis at 50% is proposed to be increased from INR 5m to INR 7.5m where the aggregate amount received in cash does not exceed 5% of gross receipts

SEZ Unit – Export Proceeds

For AY 2024–25 and onwards, SEZ units can claim income tax deduction only if:

• they file their return of income within the prescribed due date, and

• proceeds from the export of goods or services are received in India within six months from the end of the previous year or such further period as may be allowed by the RBI or the proceeds are credited to a bank account maintained outside India with approval from the RBI.

Focus on compliance

Inventory valuation in audit

• To ensure that the inventory is valued in accordance with various provisions of law, it is proposed to enable the Tax Officer to direct to get the inventory valued by a cost accountant as nominated by the PCCIT/CCIT and furnish the report of inventory valuation in the prescribed form, applicable from April 01, 2023

Withholding of refund

• Proposed to integrate section 241A (that entitles tax authorities to withhold refund) with section 245 (that entitles to adjust refunds)

• Language used for substitution – Powers for withholding refund – not year specific unlike covered under section 241A

Business reorganization

• Section 170A introduced in 2022 for filing of modified return by the successor entity to give effect to order passed by any Tribunal or Court approving any scheme of business reorganization.

• Amendment proposed to provide that assessment/reassessment proceedings may be undertaken on the basis of modified tax return filed by the successor entity. Revised order to be passed in case assessment proceedings are already concluded before filing modified return.

Focus on compliance

Particulars

Regular assessment proceedings

Existing Timelines

9 months from end of AY (plus 12 months in case referred to transfer pricing officer)

Proposed Timelines

12 months from end of AY (plus 12 months in case referred to transfer pricing officer)

Regular assessment proceedings (Updated return)

Time limit for submitting TP documentation during the course of assessment

Return in response to notice under section 148

9 months from end of FY in which return is furnished

30 days from the date of notice (along with 30 days extension, if granted)

12 months from end of FY in which return is furnished

10 days from the date of notice (along with extension not exceeding 30 days)

Period specified in the notice

3 months from the end of the month in which the notice is received or such extended period as may be allowed. Any return filed beyond the said period shall not be deemed to be a return under section 139

Personal Tax

• Rebate of 100% income-tax for resident individuals where total income does not exceed INR 700,000

• Standard deduction of INR 50,000

• Surcharge is capped at 25% for income exceeding INR 2 crores

No change in tax rates and rebate under old tax regime, however the new regime would be a default option, unless otherwise exercised

Personal Tax

Gifts to Not – Ordinarily Resident Insurance

• Gifts of money or property to Resident but Not Ordinary Resident (RNOR) exceeding INR 50,000 are also brought under the purview of section 9 of the Act by making these deemed to accrue or arise in India (presently applicable only for non residents)

• Any sum received from any insurance policies (other than Unit Linked Insurance Policy), issued on or after 1 April 2023, having premium or aggregate of premium above INR 500,000 in a year is to be taxable. However, any sum received on death of the person shall remain exempt.

• Maturity amount received net of premium paid (except premium already claimed as deduction) on redemption of such policy will be taxable as Income from Other Sources.

LTCG exemption on reinvestment

• Section 54 & 54F allows exemption from capital gains on investment in new residential house. The exemption under the said sections is without any upper cap. It is proposed to cap the exemption to INR 10 Crs

• Consequentially, the same cap applies to the amount to be deposited in the Capital Gains Account Scheme w.e.f. fiscal year 2023-24.

Change in TCS rates

• Section 206C(1G) has been proposed to be amended w.e.f. 01-07-2023 to increase TCS from 5% to 20% on overseas tour package & in cases other than remittance for the purpose of education or medical treatment, without any threshold limit

Budget Scorecard