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Latest Union Budget – Status Quo For Tax Payers and a Mixed Bag For MSMEs

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After a quick look at points highlighted in the Economic survey – a precursor to the FY23 Budget, let’s look at what FM Nirmala Sitharaman had to say for Tax Payers and theMicro Small Medium Enterprises (MSMEs).

No Change in Taxation (H1)

Every year, the common man expects several things from the Budget. A major expectation revolves around ‘Taxation’

This year too, the common man expected FM Nirmala Sithamana to decrease tax rates. He/she expected the Budget to present tax rate and surcharge reductions, an increase in the deduction amount available under section 80C, an increase in the housing loan repayment exemption, dividend tax relief, capital gains standardization across different asset classes, the removal of securities transaction tax (STT) and the exclusion of GST on services provided to the general public.

However, the Budget didn’t fulfill any of these expectation. The Budget maintained its status quo on Income tax rates. Here is how taxpayers will pay taxes this year.

  • Personal income tax slabs remains as it is (H2)

In the shortest Budget speech ever, FM Nirmala Sitharaman, didn’t pronounce a single word that would sound like a melody to the taxpayers’ ears. No change came out of finance ministry’s kitty. 

An individual tax payer will continue to pay as per the existing tax slabs, depending on the tax regime that he/she selects for FY23. Under both income tax regimes, tax rebate of up to Rs. 12,500 is available to an individual tax payer under section 87A of the Income-tax Act, 1961. This means that anybody with a net taxable income of up to Rs. 5 Lakh would not be taxed irrespective of the tax regime he/she chooses.

  • The difference between two tax regimes (H2)

 

Income Tax slabs and rates for FY2022-23

Old tax regime

Total Income

New tax regime

NIL

Up to Rs. 2.5 Lakh

Nil

From Rs. 2,50,001 to Rs. 3 Lakh

5%

5%

From Rs. 3,00,001 to Rs. 5 Lakh

20%

From Rs. 5,00,001 to Rs. 7.5 Lakh

10%

From Rs.7,50,001 to Rs. 10 Lakh

15%

30%

From Rs. 10,00,001 to Rs. 12.5 Lakh

20%

From Rs. 12,50,001 to Rs. 15 Lakh

25%

From Rs. 15,00,001 and above

30%

 

There are two different tax regimes. You need to know the difference between the Old and New tax regime to decide which one to pick. Under the New Tax Regime an individual tax payer misses almost 70 income tax exemptions and deductions but gets taxed on lower rates. On the other hand, under the Old tax regime an individual can avail deductions/tax exemptions such as 80C, 80D deductions, HRA, LTA tax exemptions, etc. 

Sometimes no change can also be a good thing. 

A Mixed Bag for MSMEs (H1)

Just like the taxpayers, MSMEs also expected several things from the union Budget. And it accurately delivered on the sectors’ needs. MSMEs contributes ~29% towards the GDP, so it is important for the finance ministry to pay heed to their needs. 

There have been many MSME-centric announcements this time. The budget extended the Emergency Credit Guarantee Scheme (ECLGS) till March 2023. Moreover, the FM added another Rs. 50,000 crore to the ECLGS for the benefit of hospitality and other allied sectors. 

Pushing for digital transformation among MSMEs, the sector-centric portals such as Udyam, e-shram, NCS & Aseem would be inter-linked to widen their scope. These portals will now encompass organic databases and provide services such as credit facilitation and offer entrepreneurial opportunities. 

The Budget proposed a digital ecosystem for skilling and livelihood. Theaim is to skill, reskill and up-skill citizens through online training. 

The finance minister Nirmala Sitharaman, unveiled a World Bank- funded initiative RAMP (Raising and Accelerating MSME Performance). Though the finer details about the initiatives are not yet public, the Federation of Indian Micro Small & Medium Enterprises (FISME) is happy with the announcement. It expects a speedy economic recovery for MSMEs.

While most of the MSME sector welcomed the announcements, the Budget failed to cheer certain sections. FISME President, Animesh Saxena says that he was expecting specific measures focused on “medium” firms. But nothing came from the Budget. 

Moreover, micro and small enterprises were looking for an incentive package, but it did not materialize. Like any new startup that enjoys interest subvention for 3 years, there is no investment scheme for new MSMEs. 

While the feelings are mixed, the one thing to take away from this Budget would be the idea that the government want to emphasize on growth and economic revival of all sectors and not just certain audiences like the tax payers or the MSMEs.

This conservative budget leaves room for the ministry to maneuver in case of pandemic-related issues and imported inflation too that rising global prices may cause. 

We hope we’ve given you a better idea of the Budget. If you’ve liked this chapter don’t forget to share it with your friends and family. 

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