The Union Budget for the fiscal year 2023-24 has brought forth several changes in the tax regime. This article aims to shed light on the salient features of the budget, including the main points, changes in the tax structure, the 2023 Finance Bill, and the impact these changes will have on taxpayers like startups, pensioners, and the middle-class income group.
Union Budget 2023-24: Key Points
In the 2023-24 Union Budget announcement, the Finance Minister disclosed several modifications in the income tax slabs and rebate limits under the new income tax regime. As per the proposed 2023 Finance Bill, startups offering shares to foreign investors may have to pay “angel tax,” formerly applicable only to investments made by Indian residents.
Raise in Tax Rebate Limit
The tax rebate limit has been hiked from ₹5 lakhs to ₹7 lakhs, meaning individuals with an income less than ₹7 lakhs need not invest anything to claim exemptions. Subsequently, their entire income would be tax-free irrespective of their investment quantum. This change will likely empower the middle-class income group with more consumption power as they can spend their income entirely without worrying about investment schemes for tax exemption benefits.
Changes in Income Tax Slabs
The budget proposed a reduction in tax slabs from six to five income categories and an increase in the tax exemption limit to ₹3 lakh. However, tax assessors can still opt for the previous regime.
Implications for Salaried Individuals and Pensioners
Under the new system, the standard deduction for taxable income surpassing Rs15.5 lakhs is ₹52,500. The benefit of the standard deduction has been extended to the new tax regime, thereby benefiting every salaried individual earning ₹15.5 lakh or more by ₹52,500.
Reduction in Maximum Tax along with Surcharge
The budget proposed a decrease in the highest surcharge rate from 37% to 25% in the new tax regime, leading to a reduction in the maximum tax rate to 39%. The previous highest tax rate in India was 42.74%, which was amongst the world’s highest.
Finance Bill, 2023: The Angel Tax Amendment
The Finance Bill, 2023 includes an amendment to Section 56(2) VII B of the Income Tax Act, also known as the ‘angel tax.’ This provision implies that when an unlisted company like a startup receives equity investment exceeding their shares’ face value, it will be treated as income and taxed under “Income from other Sources.” The amendment now includes foreign investors, making any funding raised by a startup from a foreign investor taxable.
Concerns for Startups
The new amendment has caused concerns among startups as foreign investors constitute a significant source of their funding. According to a PwC India report, India’s startup funding decreased by 33% to $24 billion in 2022. The proposed changes may lead startups to consider shifting abroad, as foreign investors may hesitate to pay additional tax on their investments.
Understanding Face Value
Face value is essentially the dollar value of any stock or financial instrument at the time of issuance and can also be referred to as the nominal or dollar value. You can determine this by dividing the equity share capital by the number of outstanding shares.