February 3, 2023
India releases Union Budget 2023
The Finance Minister of India presented the Union Budget 2023 (the Budget) on 1 February 2023. The Budget includes positive proposals such as:
This Alert summarizes the key budget proposals.
Key direct tax proposals
Corporate tax rates
Tax holiday and exemptions
Apart from a single window information technology system proposed in the Budget for registrations and approvals under various regulations, the following additional tax incentives are proposed for IFSCs:
Extension of the deadline for tax neutral relocation of a fund to an IFSC to 31 March 2025.
Exemption for nonresidents on income received from offshore derivative instruments issued by IFSC Banking Units subject to fulfillment of prescribed conditions.
The deadline for incorporation of start-ups claiming tax holiday benefits is proposed to be extended by one year, i.e., from 31 March 2023 for to 31 March 2024. Also, an extension of the benefit of the carryforward of losses on the change of shareholding of eligible start-ups from 7 to 10 years from the year of incorporation is proposed.
The Budget proposes the introduction of a specific timeframe within which export proceeds are to be realized in convertible foreign exchange by units in Special Economic Zones to avail tax holiday benefit.
Under existing law, nonresident taxpayers engaged in rendering services/facilities in connection with the extraction or production of mineral oil or in a turnkey power project construction business, are allowed to opt for a presumptive basis of taxation or offer income or claim losses under the regular provisions if books of accounts are maintained. It is proposed that where presumption taxation is opted, the taxpayer is not eligible to carry forward and set-off past operating losses, including past year depreciation in years when the taxpayer opts for presumption taxation.
Compliance and audits
The Budget proposes the following changes with respect to business reorganizations:
The successor entity is now required to file a modified tax return within a specified timeframe to give effect to the business reorganization in the case of insolvency proceedings.
The tax authorities can audit and adjust the taxable income of the successor entity to give effect to the business reorganization.
Taxpayers shall be required to furnish transfer pricing documentation within 10 days upon request from the authorities.
The timeline for completion of audits is proposed to be increased from 9 months to 12 months.
The Budget proposes that any refund due to a taxpayer may be withheld by the tax authorities, pending audit proceedings and where the authorities consider that the granting of refund may adversely affect the revenue authorities.
Other direct tax proposals
The Budget proposes to tax repayment of debt by a business trust (e.g., Real Estate Infrastructure Trusts and Infrastructure Investment Trusts) to investors as well as income from redemption of units in Business Trusts, as income from other sources.
Key indirect tax proposals
The Budget proposes to expand the scope of Online Information and Database Access or Retrieval (OIDAR) services under the Goods and Services Tax (GST). The condition of essential automation and involvement of minimal human intervention is proposed to be removed from the definition of OIDAR services. Thus, emphasis will be placed only on information technology required to provide such service.
Base Erosion and Profit Shifting Action Plan (Pillar Two)
There was an expectation that the Budget would propose a framework for the implementation of Pillar Two. The Budget is presently silent on the above, and it appears that there may be more public consultations before any announcement is made.
For additional information with respect to this Alert, please contact the following:
Ernst & Young LLP (India)
Ernst & Young LLP (United States), Indian Tax Desk, New York
Ernst & Young LLP (United States), Indian Tax Desk, San Jose
Ernst & Young LLP (United States), Indian Tax Desk, Chicago
- Pratik Kamdar | email@example.com
Ernst & Young Solutions LLP, Indian Tax Desk, Singapore
Ernst & Young LLP (United Kingdom), Indian Tax Desk, London
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago