Every year the finance minister presents the budget of the country in the Lok Sabha. The budget explains how the government is planning to collect taxes or earn through other sources and how the government is going to spend the same. Governments in developing countries, usually spend more than the earnings by borrowing funds from the market or other countries, as higher spending means better public infrastructure and other schemes for development in the country. The budget papers contain details about how the government performed in past years, its estimate for ongoing years and budgets for next year. During the budget speech, the finance minister talks about the highlights of his budget explaining the key developments that the Government intends to bring, the expected deficit as a result of spending and sources of borrowing and the changes in the tax structures and legal provisions to implement the budget. Following are the key changes concerning withholding of taxes –

  1. Indian Residents are allowed to make foreign payments up to INR 7 lakh without any permission, as per the rules specified under Liberalised Remittance Scheme (LRS). These payments can be for any purpose such as gift, donation, education, medical treatments, etc. and can be through any mode such as direct remittance, credit card, debit card, travel cards, forex cards, etc. Under section 206(c) of the income tax act, banks and financial agencies are liable to collect TCS i.e. tax collected at source, on such foreign remittances at 5 per cent. Such TCS can be reclaimed as a tax credit while filing the income tax return, similar to TDS deductions. TCS is applicable only if the total remittance during the year exceeds INR 7 lakhs. However, payments for tour packages are not covered under this limit and TCS is applicable on all remittances for tour packages without any minimum limit. Now, this TCS rate on foreign remittances has been increased to 20% and the minimum threshold of INR 7 lakh has also been removed, irrespective of whether the same is for tour packages or any other purposes. This new rule shall affect foreign payments, especially payments made for direct investments in foreign stocks. This amendment is applicable from July 1, 2023, onwards.
  2. Under section 192A, payment of the accumulated balance due to an employee under the Employees’ Provident Fund Scheme, 1952 above INR 50,000 will now attract TDS at 20 per cent, instead of the maximum marginal rate, where the employees have not furnished their PAN.
  3. Under section 193, TDS on interest earned from securities is not applicable, if such security is held in dematerialised form and is listed on the stock exchange. However, owing to underreporting of income by taxpayers, in abuse of the exemption provided under this section, Section 193(ix) has been omitted and therefore, now TDS shall be applicable on such interest.
  4. Under section 194N, the threshold limit for deducting TDS has been raised from INR 1 crore to INR 3 crore, if the recipients are cooperative societies.
  5. Section 9(1) has been amended to provide that gift or any sum received by a person, not ordinarily resident in India, without any consideration above INR 50,000, shall be deemed to be accrued in India and therefore, taxable. Earlier this applied only to Non-residents.
  6. Section 17(2) has been amended to provide powers to prescribe the method for calculating perquisites relating to rent-free accommodation provided by the employer to their employees.
  7. New penalty provisions have been introduced for non-compliances related to tax deducted at source (TDS) under sections 194R and 194S.
  8. Often income is offered for tax during a financial year following the accrual basis of accounting, however, the tax on the same is deducted in the next year when the payment is settled. As per the rules, such a tax credit cannot be claimed as the income is not offered for tax in the same year. Under section 155(20), a taxpayer can now make an application to allow a tax credit of tax deducted at source (TDS) within two years from the end of the financial year in which such tax was deducted. Section 244A is also amended to provide that the interest on such refund shall be paid from the date of the application. (Effective from October 1, 2023)
  9. Under section 196A, tax is deducted at source (TDS) on income earned by a notified Mutual Fund under section 10(23D), being a non-resident or a foreign company, at the rate of 20 per cent. This is now amended to allow the benefit of the Double Taxation Avoidance Agreement (DTAA). Therefore, the rate shall be 20 per cent or rates as specified in DTAA.
  10. Under sections 206AB and 206CCA, TDS and TCS are required to be deducted or collected at a higher rate for certain specified persons who have not filed their tax returns. The definition of ‘Specified Person’ has been amended to clarify that it does not include any person who is not required to file a tax return and who is notified by the Central Government.