[Opinion] Key Expectations for Budget 2023-24

Authored by Sanket Goel – Chartered Accountant

Table of contents

1. Introduction
2. Hardship for non-residents while furnishing information in Form 10F
3. Inclusion of free samples under the provisions of section 194R of the Act
4. Tax rate on dividend income earned by residents vis-à-vis non-residents
5. Enhancement of deduction under section 80C and section 80D of the Act
6. Enhancement of standard deduction available to salaried individuals

1. Introduction

Union Budget 2023-24 will be presented before the Lok Sabha on 1 February 2023. Given the backdrop that global economies are sliding towards recession and the oil prices are ever-increasing, the Indian taxpayers keenly expect this budget to be a ray of hope. Since this would be the last full budget to be presented by the current Union Government before the 2024 general elections, taxpayer-friendly policies can be expected.

The Ministry of Finance had invited suggestions from Industry and Trade Associations for Budget 2023-24 regarding changes in direct and indirect tax. As can be seen, the policies of the government are inclined towards gradually eliminating tax incentives and exemptions. Rationalisation of tax rates is one aspect that could be taken up in the upcoming budget.

This article endeavors to highpoint some of the expectations of stakeholders that are anticipated to be taken up by the government in the upcoming budget:

2. Hardship for non-residents while furnishing information in Form 10F

As per the provisions of the Income tax Act, 1961 (‘the Act’), to claim the benefit of double taxation avoidance agreement (DTAA), a non-resident is required to obtain certificate of residence from home country alongwith furnishing of Form 10F, as applicable.

Recently, the Central Board of Direct Taxes (CBDT) has issued a notification1 stating that Form 10F is to be filed electronically. This poses a practical difficulty for the non-residents, requiring them to necessarily obtain a permanent account number (PAN) for the e-filing portal, even in cases where they are not required to file income tax return in India.

To resolve this issue, the earlier system of furnishing manual Form 10F could be restored for non-residents who are not required to obtain PAN in India. Alternatively, a non-PAN based login facility can be enabled over the portal for them.

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3. Inclusion of free samples under the provisions of section 194R of the Act

The Finance Act, 2022 introduced section 194R of the Act, where the provider of any benefit or perquisite (in the course of business or profession), shall withhold tax @ 10% from value of such benefit or perquisite provided.

In this regard, the CBDT had come up with two circulars2 to remove difficulties in the implementation of the new provisions. It was clarified vide FAQ 4 of circular dated 16 June 2022 that no tax is required to be deducted under this section on sales discount, cash discount and rebates allowed to customers, regardless of the fact that these are also benefits related to sales/purchase. The said carve-out was provided considering the difficulty that has arisen to the sellers while withholding tax.

However, it was further clarified that this relaxation would not apply to a situation where free samples are provided. This poses an undue hardship to a major chunk of stakeholders. For instance, medical practitioners usually receive medicines or other health products for medical use, only to assess the effectiveness of such medicine or product to enable usage at mass level. In some case these are even marked as ‘not for sale’.

Thus, the requirement to withhold tax on free samples should be done away and its treatment should be made consistent with that of other sales promotion activities.

4. Tax rate on dividend income earned by residents vis-à-vis non-residents

Post abolition of dividend distribution tax in the year 2020, dividend is now taxed in the hands of recipient. The rate of tax on such dividend income earned by residents could effectively go as high as 35.88%. On the other hand, as per provisions of section 115A of the Act, the rate of tax on dividends earned by non-residents is taxed @ 20%3. Further, these non-residents could also claim DTAA benefits, which will further reduce the rate of taxes for them.

Thus, in view of the considerable difference in the applicable tax rates on residents apropos non-residents, the rates for residents should be rationalised for a level playing field.

5. Enhancement of deduction under section 80C and section 80D of the Act

The extant limit of INR 1,50,000 under section 80C of the Act was last revised by the Finance Act 2014. Given the rate of inflation since then, it is the need of the hour to re-consider the limit and provide relief to the assessees especially the lower income group. Moreover, higher the savings of households, higher is the amount available at the disposal of government to be used for economic development. Accordingly, this limit should at least be enhanced to INR 3,00,000.

Similarly, the present limit of deduction under section 80D of the Act seems insignificant as compared to the amount spent on medical insurance. Even the medical expenditure incurred in covid as well as post covid era are humungous and immensely effect the pockets of a common man. Furthermore, the effect of inflation over the years should be factored in while providing relief to the assessee under this category. Hence, the deduction limit under section 80D of the Act should at least be enhanced to INR 1,00,000.

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6. Enhancement of standard deduction available to salaried individuals

A standard deduction of INR 50,000 is provided for individuals while calculating salary income under section 16(ia) of the Act. The said limit was last revised by the Finance Act, 2019 and since then, has been kept intact. While there are limited avenues for a salaried individual to deduct from salary, person carrying on business / profession are allowed to debit various expenses in their profit and loss account during calculation of income under the head ‘profit and gains of business or profession’. Notably, even the salaried individuals have to incur various expenses such as travelling expense, communication expenses etc. for which they are not allowed any deduction, although same is incurred during the course of employment only.

Conspicuously, major portion of personal income-tax collection comes from the salaried class4. Keeping into consideration the said statistics, it can be rational to expect some relief to salaried class. For that reason, the standard deduction can at least be enhanced to INR 1,00,000, to ensure even-handedness between salaried and business class.