Budget 2023: Will small businesses’ expectations fulfilled this time; here’s key points
The Union Budget 2023 is finally approaching. It’s that time of year again when businesses and regular people pay close attention to every word the finance minister says on how the government will distribute funds and change regulations across numerous industries.
The finance minister will keep the slow budgetary growth over the previous two years brought on by the pandemic and the problems associated with the Russo-Ukrainian war in mind.
The finance minister met with top economists and industry titans in November 2022 to talk about how India can maintain robust growth in the impending policy-induced global recession. India endured the last two years of the recession and kept up a solid growth rate by offering tax breaks and incentives to individuals and, to some extent, enterprises.
As a result, many business executives are curious about what the Union Budget’23 has to offer this year. The following are a few of the expectations and viewpoints that businessmen have towards the budget.
Expecting Investments to Improve Logistics’ Organization
“Logistics is one of the most competitive industries in the world, to the point where it is recognised as the basis upon which all other businesses are constructed,” stated Zaiba Sarang, Co-Founder of iThink Logistics. Because of this, while discussing budget allocation, we must recognise how important it is to invest in this sector and to ensure that our investments are concentrated on matters that are truly important. Since logistics is an unorganised industry, we should plan investments in initiatives that will organise it. For example, PM Gati Shakti has prioritised seamless multimodal connectivity to support efficient operations.
We can look forward to the National Logistics Policy’s execution, which will bring down the GDP cost from 14% to single digits. As one of the industries with the highest carbon emissions, logistics has been targeted for investment in order to become carbon-neutral through the use of electric scooters, low-carbon fuels, and other comparable technology. Additionally, we can anticipate investments in port infrastructure of Rs 2 lakh crore to reduce logistical inefficiencies. In general, we may say that 2023 will mark the year when the logistics sector realises its full potential.
Increasing PLI Program
To support the slogan “Make in India,” the PLI (Product-Linked Incentive) scheme attempts to decrease imports while increasing exports. To achieve the objective, a portion of the industry continues to concentrate on producing the items locally. Therefore, the government of India offers incentives to the company that uses domestic products (lower expenditure) that are available at lower prices and displays incremental sales (more profits than assured).
In light of this, the Indian government may increase PLI exposure in the budget for 2023 by growing the manufacturing sector. However, only certain corporate and larger companies have access to this service. In order to increase exports, the new plan may also include other MSMEs that are expanding quickly.
To address the Form 26AS issue of partial TDS credit not being granted
Small firms and professionals are not given the full TDS credit shown in Form 26AS when the income offered in the ITR form (as per books) is less than that shown in Form 26AS under the current income tax return (ITR) processing procedure.
Because the deductor and the taxpayer use different accounting methods, receipts reported on Form 26AS may relate to income that was already subject to tax in prior fiscal years or they may be receipts of advance income reported on Form 26AS for the current fiscal year.
The end result is that the taxpayer will not receive the TDS credit, either in the financial year prior to the one in which the income was offered (because the TDS credit does not appear in Form 26AS for that financial year) or in the year after (because the income reported in the books is less than the gross receipts reported in Form 26AS), resulting in the taxpayer losing the TDS credit.
The ITR processing mechanism procedure should be changed in certain situations to ensure that TDS Credit is permitted in the year in which it is appearing in Form 26AS, even if gross receipts as per Form 26AS are larger than income as offered in the ITR.
Reduced income tax rates for LLPs and partnership firms that operate small businesses
In contrast to corporations, professionals and small businesses are frequently incorporated as partnership firms or LLPs due to the simplicity of incorporation, cheap operating costs, lighter compliance requirements, and other advantages. Partnership firms and LLPs are subject to a flat 30% tax under the current rules (plus applicable surcharge and cess). Under certain conditions, enterprises that are set up and run as private limited companies, however, can benefit from lower effective tax rates like 25.17% or 17.16%.
In addition to paying tax at a significantly higher rate and being unable to choose to pay it at a concessional rate, a sizable class of small and medium-sized businesses operate as partnerships or LLPs. Accordingly, it is necessary to lower the tax rates for partnership firms and LLPs or introduce a concessional regime for partnership firms and LLPs having turnover up to a certain limit in order to bring them on par with the corporates in order to encourage entrepreneurship, encourage more business entities in India, and reach the milestone of a USD 5 trillion economy by 2025.
Providing Flexible Funding to Support NGOs
“This is an especially anticipated Union Budget as India leads the G20 Presidency, and our inclusive development models will be closely studied,” Deval Sanghavi, Partner and Co-Founder of charitable organisation Dasra, stated. In order to apply such development models to vulnerable populations, grassroots NGOs are essential. We hope that the flexible funding and capacity building provided by Budget 2023 would inspire more charitable giving around the nation to assist NGOs. Local social leaders will be able to use this to better manage their organisations, serve their communities, and promote change.
Budget 2023 Should Take into Account Increasing the Start-Up Tax Exemption Period from Three to Five Years.
“Over the course of the last six years, DPIIT has recognised more than 84,000 businesses under the Start Up scheme, creating employment for more than 0.86 million individuals in India. Although the existing system has numerous advantages, entrepreneurs still have to deal with a number of real-world problems. Union Budget 2023 should take into consideration increasing the “Tax Exemption” period from 3 years to 5 years without limiting the number of years within which a start-up can enjoy or claim the exemption.
According to Sandeep Agrawal, director and co-founder of Teamlease Regtech, start-ups are now unable to take use of this benefit, as evidenced by the fact that only 993+ enterprises out of more than 84,000 businesses have done so.
He further stated that rather than “monthly” payments, the government will take into account “quarterly” payments of GST Liability. This will assist Start-Ups in managing their ongoing problem with cash flow, which is made worse by the legal responsibilities associated with making monthly GST payments. Being an indirect tax, businesses must collect GST from customers and pay it to regulators; but, due to delays in receiving unpaid GST from customers, business owners must pay the GST duty out of their own pockets.
“At the beginning of the global financial environment, SMEs are in dread about finance and revenue and are looking toward the Budget,” said Manoj Shastrula, CEO and founder of SOCLY.io. Reducing the GST and tax slabs for startups and introducing a tool like venture debt capital are both wise steps that can be very beneficial.
Industry Tax Incentives
Many businesses are adapting to newer technologies that make their processes more seamless this decade, and there is an expectation for a tax incentive on operational and capital expenditure on one such booming technology, such as AI (Artificial Intelligence), ML (Machine Learning), IOT (Internet of Things), and others. The ASSOCHAM (Associated Chambers of Commerce and Industry of India) proposal to cut the capital interest rate for late payments from 18% to 12% could be included in the budget.
Rationalization of TDS rates for new firms and small businesses
While the TDS rates in some other sections (Section 194J – applicable for Professional Services and Section 194-I – applicable for TDS on rent of land and building) may go as high as 10%, certain sections provide a nominal TDS rate (for example, Section 194C – applicable for contracts imposes a TDS rate @ 1%/2% depending upon the nature of tax deductee).
By imposing restrictions on their liquidity—a crucial component for the smooth operation of the business operations—small enterprises and start-ups are subjected to withholding requirements, which leads to problems with working capital. Therefore, it is advised that the TDS rates under sections 194J and 194I be rationalised and decreased from 10% to 5%.
Government Should Take into Account Restoring Input Tax Credit for Real Estate Developers
“The home loan/real estate sector is an essential component of the Indian economy and is facing some hard times due to the rising interest rates,” stated Atul Monga, CEO and creator of BASIC Home loan. Affordability is a major concern for buyers as rising interest rates can have a significant influence on the home loan and real estate sectors. The government must take action, such as raising the Section 24(b) tax rebate on mortgage interest to Rs 5 lakh.
In most Indian cities, the present price range of Rs. 45 lakh for a home to be called affordable housing is not acceptable; it should be raised to Rs. 75 lakh or more.
He continued by saying that the existing GST structure for inexpensive and under-construction housing places an additional burden on developers and drives up the price of properties for buyers. Because developers cannot claim tax credits for GST paid on input items, the GST on steel and cement is 18% and 28%, respectively, which raises the price of a home.
The government may think about reintroducing the Input Tax Credit (ITC) in the future budget in order to lessen this burden and raise the affordability of houses. Additionally, lowering the price of raw materials like cement and steel and capping the GST at 1% for projects that are still under construction could encourage more people to purchase cheap homes, according to Monga.
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