[Opinion] Finance Bill 2023 – An exercise in pursuit of lending benefits, clarity and regulatory

Authored by V. K. Subramani | CA

In the Budget speech the Hon’ble Finance Minister was eloquent in listing outlays envisioned by the Government. The final lap of her speech contained proposals related to Direct tax and personal income-tax. As expected, there is a huge tax relief to the personal taxpayers under the New Tax Regime (‘NTR’ reminiscent of icon of erstwhile State of Andhra Pradesh).

This write-up just takes snap shot some changes proposed to plug the loopholes and bestow some benefits besides clarity some of the provisions under the income-tax Act, 1961.

Section 44AD: The Finance Bill,2023 proposes to insert a proviso after Sub-clause (ii) in clause(b) of the Explanation to section 44AD which would be applicable from 1st April, 2024. It is to extend the benefit of availing the presumptive determination of income where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed 5% of the total turnover or gross receipts of such previous year. As against the present limit of Rs.200 lakhs, the proposed amendment would apply up to the turnover limit of Rs.300 lakhs. Hence, those having turnover above Rs.200 lakhs but below Rs.300 lakhs can admit income under section 44AD if the cash receipt is less than 5% of the turnover.

A further proviso is proposed to be inserted to clarify receipt of amount or aggregate of amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.

Section 44ADA: The Finance Bill,2023 also proposes to extend the abovesaid benefit to persons engaged in profession. A proviso after sub-section (1) to section 44ADA is proposed to be inserted. It is applicable in cases where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed 5% of the total gross receipts of such previous year. As against the present limit of Rs.50 lakhs, the benevolent provision would apply up to gross receipt of Rs.75 lakhs.

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A further proviso is proposed to be inserted to clarify receipt of amount or aggregate of amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.

Note: Both the further provisos must cover even electronic payments through bank account by using the expression “receipt by way of account payee crossed cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account or such other electronic mode as prescribed shall only be excluded from cash receipt”. Both the further provisos require rephrasing to provide clarity in this regard.

Expanded scope of section 115BAC: The Finance Bill 2023 seeks to amend section 115BAC of the Act and it is proposed to amend the marginal heading of the said section so as to provide that the said section applies to tax on income of individuals, Hindu undivided family and others. It is further proposed to insert a new sub-section (1A) in the said section so as to provide that notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, the income-tax payable in respect of the total income of a person, being an individual or Hindu undivided family or association of persons (other than a cooperative society), or body of individuals, whether incorporated or not, or an artificial juridical person referred to in section 2(31)(vii), other than a person who has exercised an option under sub-section (6), for any previous year relevant to the assessment year beginning on or after 1st April, 2024, shall be computed at the rate of tax given in the Table therein.

Section48: Finance Bill,2023 proposes to insert a proviso after clause(ii) to section 48 so as to clarify that the cost of acquisition of the asset or the cost of improvement thereto shall not include the deductions claimed on the amount of interest under clause (b) of section 24 or under the provisions of Chapter VIA.

Section 28(iv): Finance Bill,2023 proposes to substitute section 28(iv) to cover comprehensively and exhibit with clarity the intention of legislature viz; the value of any benefit or perquisite arising from business or the exercise of a profession, whether–– (a) convertible into money or not; or (b) in cash or in kind or partly in cash and partly in kind. This is applicable from1st day of April,2024.

Section 43B(h): The Finance Bill,2023 proposes to regulate claim of expenses when payable to MSMEs. It proposes to insert clause (h) to section 43B whereby any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 shall not be eligible for deduction.

The proviso to section 43B excludes clause (h) which means the extended time up to the ‘due date’ for filing the ITR specified in section 139(1) would also not apply. This is akin to section 36(1)(va) applicable for employee’s contribution to PF/ESI and other funds.

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