Union Budget 2023: Overview Startups | Founders | Investors

First Published on 3rd February 2023

KEY MACRO ECONOMIC INDICATORS

1. GDP growth estimated at 7%
2. This year nearly 6.5 crore Income tax returns were filed
3. Average processing period of Income Tax Returns reduced from 93 days in financial year 13-14 to 16 days now.
4. Fiscal deficit is estimated to be 5.9% of GDP
5. Per Capita income has increased to INR 1.97 lakh p.a.
6. Digital payments widened around 76% in transactions and 91% in value over the last year.

BUDGET SNAPSHOT FOR STARTUP STAKEHOLDERS

KEY HIGHLIGHTS FOR STARTUP ECOSYSTEM

1. Maximum surcharge rate capped to 25% under new tax regime thereby reducing the maximum tax rate from 42.74% to 39%
2. Rollover benefit under section 54 and 54F for reinvestment of capital gains in new residential properties capped at INR 10 crore
3. Change in shareholding of eligible start-ups not to impact carry forward of losses as long as such loss is incurred during the period of 10 years (previously 7 years) beginning from the year of incorporation
4. Angel tax provisions extended to infusion of share premium in excess of FMV by non-residents (earlier applicable only to infusion by resident shareholders) – Exemption from angel tax to startups still continues
5. Payments to MSMEs beyond mandated 15 / 45 days (as per MSMED Act) is proposed to be allowed as deduction only on payment basis. Deduction allowed on accrual basis only if payment made within aforementioned mandated time
6. Rebate provided to individuals earning upto INR 7 lakhs in an FY – no tax required to be paid by such individuals

STARTUPS

1. Threshold for small businesses to avail the presumptive tax scheme is increased to INR 3 crore from INR 2 crore
2. TDS introduced on net winnings from online games at the time of withdrawal or at the end of the financial year without any threshold. Threshold of INR 10,000 for TDS on winnings lottery, crossword puzzles games, etc clarified to apply to aggregate winnings during a financial year (and not per transaction)
3. Date of incorporation for startups eligible to apply for tax holiday extended to 01 April 2024 (earlier 01 April 2023)
4. Clarification provided that the cost of acquisition / cost of improvement of intangible asset / rights for which no consideration was paid for acquisition will be NIL for the purpose of computation of capital gains
5. Provisions of section 28(iv) and section 194R regarding taxability and TDS on benefit or perquisite received in the course of business extended to benefit or perquisite provided in cash
6. Basic customs duty rate reduced to 13% from 21% on goods (other than textiles and agriculture)
7. Custom duty exemption on machinery for manufacture of lithium-ion cells used in batteries of EVs extended to 31 March 2024

FOUNDERS AND TEAM

1. Threshold for professionals to avail the presumptive tax scheme is increased to INR 75 lakhs from INR 50 lakhs
2. Gift of a sum over INR 50,000 by a resident individual to a ‘resident but not ordinarily resident’ individual now taxable in the hands of the recipient
3. Standard deduction of INR 50,000 to salaried individuals, and deduction from family pension up to INR 15,000 now allowed under the new tax regime as well
4. Tax exemption limit increased to INR 25 lakhs from INR 3 lakhs on income from salary under ‘leave encashment’ for non government employees.
5. Anomaly of double deduction of interest on borrowed capital for property (as deduction from income from house property and added to cost of acquisition / improvement for computing capital gains on sale) now removed
6. Income from Insurance policies issued after 01 April 2023 (other than ULIP) having premium above INR 5 lakh in a year now taxable (except where income is received on death of insured person)

ANGEL INVESTORS

1. TCS on foreign remittances under LRS and overseas tour packages increased to 20% without any threshold (earlier 5% with a threshold of INR 7 lakhs)

There are no specific tax announcements pertaining to VCs except amendments in sec 56 (2)(vii)(b) for offshore funds mentioned above

About the Author

Darshana Chauhan

Senior Associate | darshana.c@treelife.in

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