The estimated growth rate of India in FY 2022-23 is 6.8 percent (as per IMF estimates) and is generally in the range of 6.5 percent to 7.3 percent as per various estimates is encouraging considering the global slowdown and the impending risk of global recession. Also, notably for FY 2023-24, India's GDP growth is expected to remain robust and is forecasted to be in the range of 6-6.8 percent per annum.
Some of the highlights of budget proposals from corporate perspective are as under:
No Changes proposed in the Corporate Tax rates
The union budget 2023 has made no changes to the corporate tax structure in India and it seems that the focus is on stability, ease of doing business and easing the compliance framework. The current tax rates for corporates in India at 17.16 percent for new eligible manufacturing companies and 25.17 percent (in other cases, subject to conditions) is one of the lowest in the world.
One of the conditions prescribed for availing the lower rate of 17.16 percent is that the companies must commence their production on or before 31 March 2024. India is emerging as the preferred manufacturing destination as most global companies are looking at broad basing their manufacturing locations in view of the geo-political developments. In recent times, several global companies in electronics, auto and engineering sectors have announced mega investment plans for India for manufacturing projects.
Most manufacturing projects have long gestation periods ranging from 1 year to 3 years. As such, it would be a major relief if such period for commencing production is extended from 31 March 2024 to 31 March 2026 for such new manufacturing companies, as it would bring in clarity and also would ensure timely capitalisation, execution and operationalisation of such new companies.
MSMEs - Presumptive Scheme Scope extended with Higher Turnover limits
As MSMEs are growth engines of the Indian economy, this Budget has liberalised the compliance burden for Micro and Small Enterprises.
As per Section 44AD, currently 6 percent or 8 percent is deemed to be profits for businesses having turnover upto Rs. 2 cores subject to certain conditions. This scheme applies to certain resident assessees (i.e., an individual, HUF or a partnership firm other than LLP) carrying on eligible business. In case of professionals being an individual or partnership firm other than LLP, currently 50% of the gross receipts (upto gross receipts of Rs. 50 Lakhs) is deemed to be profits as per Section 44ADA.
In order to ease compliance and to promote non-cash transactions, it has been proposed to increase the turnover limit to Rs. 3 crores for businesses and Rs. 75 lakhs for professionals for purpose of opting the aforesaid presumptive scheme of taxation. This is subject to the condition that the cash receipts does not exceed 5 percent of total turnover or gross receipts. This is a welcome move and would cover quite a large section of businesses and professionals having turnover upto Rs. 3 crores and Rs. 75 Lakhs respectively.
Relief Measures to incentivise Start-up ecosystem
The finance minister in her budget speech mentioned that India is now the third largest ecosystem for start-ups globally and ranks second in innovation quality among middle-income countries. As such, budget 2023 proposes to provide certain tax reliefs to start-ups as under:
Significant steps to make the New tax regime more attractive from personal taxation front
One of the significant measures which would benefit the salaried class working in corporates or other sectors and small taxpayers is the 5 major proposals to make the new tax regime more tax efficient as compared to the earlier regime. Some of the steps which would benefit generally the small taxpayers, but more specifically the salaried class under the New tax regime include the increase in the limit of rebate under new tax regime from Rs. 5 lakhs to Rs. 7 lakhs, increasing the basic exemption limit, reducing the number of tax slabs from 6 to 5, benefit of standard deduction extended, removing the tax slab of 25 percent and capping the surcharge for at 25 percent (earlier 37 percent surcharge was the highest rate) thereby bringing down the highest marginal tax rate from 42.744 percent to 39 percent.
Expenditure relating to Micro and Small Enterprises allowed only on payment basis
There has been a significant thrust on incentivising the MSME sector in the budget 2023 and one of the tax proposals has been towards promoting timely payment to the MSMEs.
An amendment is proposed in section 43B of the Income-tax Act (IT Act) to include payments made to MSMEs within its ambit of section 43B of the Income Tax Act. Accordingly, 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 (MSMED) Act 2006 shall be allowed as deduction only on actual payment. The MSME Act mandates payments to micro and small enterprises within the time as per the written agreement, which cannot be more than 45 days and where there is no written agreement, the period for payment is 15 days.
Thus, the proposed amendment to section 43B of the Act will allow the payment as deduction only on payment basis. As such, for any vendor such expenses can be allowed on accrual basis only if the payment is made to the micro and small enterprise within the time mandated under section 15 of the MSME Act.
This proposal would benefit a significant number of small and micro enterprises, which generally deal with the working capital liquidity issues due to delay in receipt of payments. Though, right now it seems that the benefit of this new proposed amendment in section 43B would not cover medium enterprises as defined under the MSME Act.
— The author, Dr. Suresh Surana, is Founder, RSM India. The views expressed are personal.
(Edited by : C H Unnikrishnan)
First Published: Feb 3, 2023 1:47 PM IST
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