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India Union Budget 2023 – Wishlist and Expectations

As we are heading towards the India Union Budget 2023- wishlists for Honorable Finance Minister, Smt. Nirmala Sitharaman are pouring in. The Finance Minister may consider introducing relief packages in the union budget for salaried class people, borrowers, and lenders and lifting ambiguities by bringing clarifications to taxpayers to showcase to the world, the ease of doing business in India and inviting more foreign investments. KNAV tax experts suggest below measures that must come as a part of India Union Budget 2023:

• Corporate Income Tax
• Tax percentage for a foreign company is 40% as compared to 22% for domestic companies – Corporate tax percentage for foreign companies including banks be reduced to bring them at par with domestic companies. Branches of foreign companies who do not avail benefit of tax holiday and additional depreciation should not be subject to MAT. If tax rate for a foreign company is reduced, then a suitable branch profits tax may be introduced to equalize with tax on dividends as in case of a domestic company.
• Removal/abolition of MAT/AMT under sections 115JB and 115JC respectively.
• Extension of date of commencement of production till March 31, 2025, for claiming the benefit of a 15% tax rate by the new manufacturing companies or another 5 years. This will help the manufacturing sector and assist in Atmanirbhar Bharat.
• Incentivise R&D spending by weightage deduction and/or a tax rate of 10% for R&D companies.
• Reduce unnecessary compliance burden by removing TCS and rationalising TDS provisions.
• Negotiated tax dispute resolution scheme may be introduced.
• Partnership firms having turnover up to a certain limit can also be taxed on par with corporate. i.e., at 25% or 22%.

• International Tax & Transfer Pricing

• India to showcase intent and preparedness for implementation of OECD Inclusive Framework Pillar One Amount A. Abolish Equalisation Levy (EL) if Amount A enacted.
• In case a business connection is constituted of an entity because of it having a Significant Economic Presence (SEP) in India, PE attribution rules may be introduced for attributing income because of such presence, in line with recommendations of Pillar One. Further, there may be practical difficulties regarding calculation of number of users threshold of three lakh users in India as even if a single person is logging in through multiple logins, the same may be considered as multiple users based on the login and not a single user. Draft rules for calculation of threshold may also be introduced.
• In case there is an overlap in applicability of Equalisation Levy/Significant Economic Presence/provisions of the Act to the same transaction, for e.g., advertisement services, which levy/tax should be given preference may be clarified by the government.
• Draft Rules/Ordinance regarding Pillar Two may be introduced in India with a lower threshold compared to OECD. Countries like Japan, EU, etc. have published draft consultation papers regarding the same.
• Broader inter-quartile range of 25th to 75th percentile may be adopted and application of arm’s length range for even less than 6 comparables may be considered.
• Secondary adjustment applicability limit may be increased to INR 2 crore. Further, consequential benefits like considering the same as income under section 2(24) of the Act, non-levy of interest under section 234B on such adjustment, non-applicability of MAT provisions on the same, etc. may also be considered.
• Safe Harbour Rules remain unchanged since FY 2016-17 at a higher percentage and are considered as a compromised formula. The same may be rationalised at reasonable acceptable rates to make it successful and attractive to the taxpayers.
• Speed up the APA process to bring at par with global peers – for e.g., in FY 2018-19, the average time taken by CBDT for the conclusion of unilateral agreements was 45.22 months and for bilateral agreements was 51.82 months. However, during FY ending 2018, the USA had an average timeline of 35.4 months for unilateral agreements and 47.8 months for bilateral agreements.

• Individual Tax

• Section 80C limits may be increased to INR 3 lacs.
• Basic Exemption Limit may be increased to INR 5 lacs. Alternatively, the tax rebate limit may be raised to at least INR 8 lacs. This will help the common man in reducing the burden and money will come back into the economy by higher post-tax spend.
• With the increase in home loan interest limit to INR 3.5 lacs – This will boost the real estate sector.
• With the increase in Savings interest rates offered by banks, Section 80TTA limit may be increased to INR 20 thousand and section 80TTB limits may be increased to INR 75 thousand.
• Standard deduction limit on employment income may be increased to INR 1 lac. This is critical and will help employees who spend money on travel and don’t have any expense deduction, unlike businesses.
• Capital gains tax has become complex due to differential rates and holding periods of various assets. Suitable rationalisation may be made to make it simple.
• To encourage investment in capital markets, long-term capital gains on listed shares and securities may be made tax-exempt.

• Indirect Tax

• Basic customs duty could be increased on non-essential items as well as those, which are to be given protection for manufacturing in India.
• A road map for correction of inverted duty structure on specified items, including textiles and electric vehicles, may be framed, including to boost exports.
• Amendment in GST law should be made as per decision taken at 47th GST Council Meeting, for waiver of mandatory GST registration for persons supplying goods through electronic commerce operators.
• Amendment in GST law should be made, as per decision taken at 48th GST Council Meeting, including for decriminalisation of certain offences and amendment in definition of ‘online information and database access or retrieval services’.
• The indirect tax implications for virtual digital assets, including crypto assets, may be pronounced.
• Production Linked Incentive may be expanded to new items for manufacturing in India.
• The New Bill to replace the Special Economic Zone Act, may also be tabled in the Parliament.
• Tax buoyancy in collections during current year may give record amount of projections on indirect tax collections for the budgeted year.

5) Other Considerations

• In the case of non-compete fees, whether or not the same is a revenue expenditure or capital expenditure for the buyer should depend upon whether the agreement for the seller is a restrictive covenant or a negative covenant. If it is a restrictive covenant, the expenditure can be considered a revenue expenditure and if it is a negative covenant, the same can be considered a capital expenditure. The same factors should apply to determination of income in the hands of the seller – whether revenue or capital.
• Whether tax dues have a priority over other dues in Insolvency and Bankruptcy Code (IBC) waterfall mechanism – a much debated and contentious issue. Suitable amendments may be made to laws to bring clarity regarding the same. Concluding remarks
• With the bunch of challenges like inflation remaining above its tolerance range, the rising dollar resulting in soaring import bills and the after-effects of a global pandemic, high-level expectations are awaited in the upcoming India union budget. Further, with the direct tax and GST collections surpassing expectations and with the aim of fiscal consolidation, one would expect greater stimulus in the India union budget to further boost the economy to achieve the vision of USD 5 Trillion economy.