Union Budget

Budget Analysis – Sections 115 onwards except NRI taxation

Author: CA. Kusai Goawala • Member of the Institute • Contact: eboard@icai.in • The Chartered Accountant | March 2023 (pp. 46–54 / Journal pp. 990–998)

Macro Shift: New Tax Scheme as Default Regime

Earlier, The New Tax Scheme (NTS) was to be opted by Individual or HUF. In case of an assessee having business income, this scheme once opted cannot be changed. In other cases, the same could be changed every year at the option of the Assessee. However, under the proposed amendment in Finance Bill 2023, NTS has been made the default scheme. An Assessee will now have to specifically opt for the old Tax scheme if it desires to go for the same.

1. Special Tax Regimes & Concessional Provisions (Sections 115BAC to 115UB)

Section 115BAC – New Regime: Changes in Slab and Tax Rates

Sr. No. Total Income Slab Tax Rate
1 Up to 3,00,000 Nil
2 From 3,00,001 to 6,00,000 5%
3 From 6,00,001 to 9,00,000 10%
4 From 9,00,001 to 12,00,000 15%
5 From 12,00,001 to 15,00,000 20%
6 Above 15,00,000 30%
  • Default Tax Regime: New Tax regime will be the default tax regime from AY 2024-25.
  • Standard Deduction: Earlier under NTS, Standard Deduction was not available to the assessee. However, now Standard deduction from salary of Rs. 50,000 is extended to the new tax regime.
  • Surcharge Reduction: Under the new tax regime, the highest surcharge rate of 37% on income above Rs. 5 Crores has been reduced to 25%.
  • Expanded Entity Coverage: The alternate tax regime of section 115BAC is now applicable to Association of Persons (AOP) (other than co-operative society), Body of Individuals (BOI), and Artificial Juridical Person (AJP).

Section 115BAD – Tax on Co-operative Societies

This section applies to Co-operative Societies. The tax is applicable at 22% subject to fulfillment of prescribed conditions and option exercised by the assessee.

However, under Finance Bill 2023, for manufacturing Cooperative Societies: In section 115BAD of the Income-tax Act, in sub-section (1), after the words “provisions of this Chapter,”, the words, figures and letters “other than those mentioned under section 115BAE,” shall be inserted.

Section 115BAE – Insertion of New Provision: Concessional Tax Regime for New Manufacturing Co-operative Societies

Tax on income of certain new manufacturing co-operative societies set up and registered on or after 01.04.2023:

  • Tax rate is 15% subject to fulfillment of certain conditions.
  • For Short Term Capital Gains on assets on which no depreciation is allowed, the applicable rate is 22%.

Section 115BB – Exclusion of Online Gaming Income

Since separate provision is provided (Section 115BBJ) for Online Gaming Income, online gaming is excluded from this section. Section 115BB continues to deal with income from winnings from lotteries, crossword puzzles, races including horse racing, card games and other games of any sort or gambling or betting. Under Finance Bill 2023, Online Gaming is removed from Section 115BB and carved into Section 115BBJ.

Section 115BBJ – Dedicated Tax on Online Game Winnings

Inserted specifically for taxing income from online gaming: Amount of income-tax calculated on net winnings from such online games during the previous year shall be taxed flat at the rate of 30% (thirty per cent).

Section 115JD – Alternate Minimum Tax (AMT) Non-Applicability

Sub-section (7) of Section 115JD has been substituted to provide that the provisions of Alternate Minimum Tax shall not apply to a person where:

  • (i) such person has exercised the option referred to in sub-section (5) of section 115BAC or sub-section (5) of section 115BAD or sub-section (5) of section 115BAE; or
  • (ii) income-tax payable in respect of the total income of such person is computed under sub-section (1A) of section 115BAC.

Impact: Non-applicability of AMT is formally extended to persons exercising option u/s 115BAE and those assessed under default regime u/s 115BAC(1A).

Section 115UA – Taxation of Business Trust Distributions

Sub section 3A has been inserted to exclude the unit holder from its purview whose tax liability is determined as per the newly inserted provision of section 56(2)(xii) (governing distribution of repayment of debt or redemption).

Section 115UB – Investment Funds in IFSC

Scope expanded by adding investment funds regulated under the International Financial Services Centres Authority (Fund Management) Regulations, 2022.

2. Search, Seizure, Assessment & Rectification Procedures (Sections 132 to 155)

Section 132 – Comprehensive Search and Seizure Overhaul

Sub-section (2) – Requisition of Technical & Financial Experts:

In the newly added sub-clause, the authorized officer may requisition the services of any person or entity as may be approved by Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General, in accordance with the prescribed procedure.

Earlier, such requisition was strictly limited to police officers or officers of the Central Government.

Sub-section (9D) – Reference to Registered Valuers & Outside Entities:

The authorized officer may, during search or seizure or within 60 days from the date on which the last authorization for search was executed, make a reference to any approved person, entity, or registered valuer under any law for the time being in force.

Earlier, valuation references were limited to Departmental Valuation Officers referred to in Section 142A.

Explanation 1 – Deemed Date of Execution of Last Authorization (w.e.f. 01.04.2022):

For the purposes of sub-sections (9A), (9B), and (9D), the last authorization for search shall be deemed to have been executed:

  1. (a) In search cases: on the conclusion of search as recorded in the last panchnama drawn in relation to any person named in the warrant; or
  2. (b) In requisition cases u/s 132A: on actual receipt of books of account, documents, or assets by the authorized officer.

(Previously, reference for deemed execution was linked to Section 153B(2)).

Assessment, Reassessment & Notice Procedures (Sections 135A to 153)

  • Section 135A – Faceless Collection of Information: Proviso added empowering Central Government to amend any direction issued under sub-section (1) on or before 31st March 2022 by Official Gazette notification.
  • Section 140B(4) – Updated Return Clarifications: Words “as the case may be” omitted in opening paragraph, and word “if any” added in clause (a)(ii).
  • Section 142(2A) – Departmental Audit Extended to Inventory: Scope of special audit extended to inventory. Assessing Officer can now direct valuation of inventory by a Cost Accountant.
  • Section 148 – Reassessment Notice Timelines: Return in response to notice u/s 148 must be filed within 3 months from the end of the month in which notice is issued or within extended period allowed by the AO. Proviso added: Any return furnished beyond the allowed period shall not be deemed to be a return under Section 139.
  • Section 149 – Exclusion of 15 Days for Limitation: Where limitation period for issuing notice u/s 148 expires on 31st March, a period of 15 days is excluded in computing limitation for search u/s 132 or requisition u/s 132A conducted after 15th March.
  • Section 151 – Sanction for Notice: The phrase “where there is no Principal Chief Commissioner or Principal Director General” is omitted.
  • Section 153 – Completion Period: Time limit for completion of assessment u/s 143 or 144 has been substituted to 9 months.

Section 155 – Special Amendments & Rectification Mechanisms

Sub-Section 11(A) – Foreign Exchange Realisation Relief Extended to Section 10AA (w.e.f. 01.04.2024)

Where SEZ deduction u/s 10AA was disallowed on the ground that export proceeds were not received in convertible foreign exchange in India, and proceeds are subsequently brought into India within permitted time, the AO shall amend the assessment order to allow deduction under Section 10AA, in line with Section 10A, 10B, and 10BA.

Sub-Section (19) – Disallowance Relief for Sugar Manufacturing Co-operatives

Where deduction for sugarcane purchase expenditure claimed by a sugar manufacturing co-operative was disallowed wholly or partly for any PY on or before 01.04.2014, the AO shall recompute total income upon application, allowing deduction up to the Government-fixed or approved price. Section 154 applies, with the 4-year limitation period running from the end of the previous year commencing on 1st April 2022 (i.e. up to 31st March 2027).

Sequential Steps: Disallowed sugarcane expense in PY <= 01.04.2014 ➔ Assessee makes application ➔ AO recomputes income allowing expenditure up to Government-approved price ➔ Section 154 applies with 4-year time limit expiring on 31.03.2027.

Sub-Section (20) – Rectification for Subsequent-Year TDS Deduction (w.e.f. 01.10.2023)

Where income was included in return filed u/s 139 for a relevant assessment year, but TDS was deducted and deposited in a subsequent financial year, the AO shall amend assessment or intimation to grant credit in the relevant year, upon application made within 2 years from the end of the FY of deduction. Limitation of 4 years u/s 154(7) runs from the end of the FY in which tax was deducted. Credit shall not be allowed in any other assessment year.

3. Business Reorganisation & Successor Assessment (Section 170A)

Section 170A Substituted – Streamlining Post-Order Modified Returns

  • Modified Return Filing (Sub-section 1): In cases of business reorganisation approved by High Court, Tribunal, or IBC Adjudicating Authority, where prior return was filed u/s 139, the successor entity shall furnish a modified return within 6 months from the end of the month of the sanction order.
  • Completed Assessments (Sub-section 2a): Where proceedings are already complete on the date of modified return, the AO shall pass an order modifying total income taking into account the modified return.
  • Pending Assessments (Sub-section 2b): Where proceedings are pending, the AO shall assess or reassess taking into account the modified return.
  • Scope & Definitions: General Act provisions and applicable tax rates apply. Defines “business reorganisation” (amalgamation, demerger, merger) and “successor” (all resulting entities).

4. Rationalisation of TDS and TCS Provisions (Sections 192A to 206CCA)

Section 192A – Premature EPF Withdrawal

Second proviso omitted. Earlier, failure to furnish PAN attracted TDS at Maximum Marginal Rate (MMR). With this removal, tax without PAN is deducted at 20% instead of MMR.

Section 193 – Listed Demat Securities Interest

Clause (ix) in proviso omitted. Interest on dematerialized securities listed on a recognized stock exchange in India is now subject to TDS.

Sections 194B & 194BA – Lottery & Net Online Game Winnings

Section 194B & 194BB Threshold Aggregation:

Threshold amended from individual winnings exceeding Rs. 10,000 to aggregate winnings exceeding Rs. 10,000 during the financial year to curb split transactions. Online games excluded w.e.f. 01.07.2023.

New Section 194BA – Net Online Gaming Winnings (w.e.f. 01.07.2023):

TDS to be deducted on net winnings in user account at the end of the financial year at rates in force (30%). In case of withdrawal during the year, tax is deducted on withdrawn net winnings. Where winnings are wholly or partly in kind, payer must ensure tax is paid prior to releasing winnings.

Key Operational Amendments across Sections 194N to 206CCA

  • Section 194N: Cash withdrawal TDS threshold for co-operative societies raised from Rs. 1 Crore to Rs. 3 Crores.
  • Section 194R: Explanation 2 inserted clarifying that Section 194R applies to any benefit or perquisite whether in cash or in kind or partly in cash and partly in kind.
  • Section 196A: Treaty benefit (lower DTAA tax rate) extended to non-resident payees receiving mutual fund income on furnishing Tax Residency Certificate (TRC).
  • Section 197: Section 194LBA included for obtaining lower/nil deduction certificates for business trust distributions.
  • Sections 206AB & 206CCA: Specified persons subject to higher deduction/collection excluded non-residents without PE in India and notified persons.
  • Section 206C(1G): TCS rate under Liberalised Remittance Scheme (LRS) and overseas tour packages increased from 5% to 20% w.e.f. 01.07.2023 (excluding medical and education remittances).

5. Refunds, Interest & Dispute Resolution (Sections 241A to 245R)

  • Section 241A Sunset & Section 245 Substitution: Section 241A shall not apply from 01.04.2023. Under substituted Section 245, the AO may set off refunds against outstanding demands after intimation, or withhold refunds during pending assessment/reassessment with approval of Pr. CIT/CIT if adverse revenue impact is anticipated.
  • Section 244A: Interest @ 0.5% per month on refunds arising from Section 155(20) applications; period of withholding u/s 245(2) is excluded in computing additional interest.
  • Section 245D(9): Settlement Commission rectification application time limit expiring between 01.02.2021 and 01.02.2022 extended to 30th September 2023.
  • Sections 245MA & 245R: Window to amend directions issued on or before 31.03.2023 by notification.

6. Cash Transactions, Penalties, Prosecutions & Rules (Sections 269SS to 295)

  • Sections 269SS & 269T: Cash acceptance of deposits and grant/repayment of loans for members of Primary Agricultural Credit Societies (PACS) and Primary Co-operative Agricultural and Rural Development Banks (PCARD) increased from Rs. 20,000 to Rs. 2 Lakhs.
  • Section 271C: Penalty for failure to pay or ensure payment of tax under Section 194R, 194S, and 194BA w.e.f. 01.07.2023.
  • Section 276A: Immunity for liquidators; no prosecution proceedings to be initiated under Section 276A on or after 01.04.2023.
  • Section 276B: Prosecutions amended to cover failure to pay or ensure payment under Section 115-O(2), 194B, 194R, 194S, and 194BA.
  • Section 295(2)(eec): Rule-making power amended to prescribe guidelines for inventory valuation.

7. Institutional Reform – Introduction of Joint Commissioner (Appeals)

In the following Sections of the Income-tax Act, 1961, instead of the word ‘Commissioner (Appeals)’, the word ‘Joint Commissioner (Appeals)’ has been substituted / powers extended to expedite first appellate disposal:

Sr. No. Statutory Section Nature of Power / Jurisdiction Conferred
1 Section 116 Power extended to Joint Commissioner as Income Tax Authority.
2 Section 119 Power extended to Joint Commissioner (Appeals) regarding CBDT instructions.
3 Section 131 Power regarding discovery, production of evidence, etc. extended to JCIT (Appeals).
4 Section 133 Power to call for information extended to Joint Commissioner (Appeals).
5 Section 134 Power to inspect register of companies extended to Joint Commissioner (Appeals).
6 Section 154 Rectification of mistake apparent from record extended to Joint Commissioner (Appeals).
7 Section 158A Procedure when identical question of law is pending before High Court/Supreme Court.
8 Section 158AB Deferral of appeal filing when identical question of law is pending.
9 Section 177 Assessment of dissolved association of persons / firm extended to JCIT (Appeals).
10 Section 189 Firm dissolved or business discontinued powers extended to Joint Commissioner (Appeals).
11 Section 249 Form of appeal and limitation for filing appeal before Joint Commissioner (Appeals).
12 Section 250 Procedure in appeal before Joint Commissioner (Appeals).
13 Section 251 Appellate powers of disposal, confirming, reducing or enhancing assessment.
14 Section 264 Revision of other orders by Principal Commissioner or Commissioner.
15 Section 267 Amendment of assessment order on appeal extended to Joint Commissioner (Appeals).
16 Section 270A Penalty for under-reporting and misreporting of income extended to JCIT (Appeals).
17 Section 270AA Immunity from imposition of penalty, etc. powers extended to JCIT (Appeals).
18 Section 271 General penalty powers for failure to comply extended to Joint Commissioner (Appeals).
19 Section 271A Penalty for failure to keep, maintain or retain books of account.
20 Section 271AAC Penalty in respect of income referred to in section 68, 69, 69A, 69B, 69C, 69D.
21 Section 271AAD Penalty for false entry, etc. in books of account extended to JCIT (Appeals).
22 Section 271J Penalty on professionals for furnishing incorrect information in reports/certificates.
23 Section 275 Bar of limitation for imposing penalties under Clause (a) and (b).
24 Section 279 Prosecution to be at instance of Principal Commissioner / Commissioner / JCIT (Appeals).
25 Section 287 Publication of information respecting assessees in certain cases.
26 Section 295 In clause (mm), rule-making power extended to Joint Commissioner (Appeals).