4 ways in which Budget 2023 hurts your wallet

It’s a Budget that woos the middle class, particularly the salaried. On February 1, finance minister Nirmala Sitharaman announced changes in the personal income tax regime to benefit the taxpayer. But while these measures that significantly come a year before the Lok Sabha elections due in 2024 are aimed at reducing your funds outgo, Budget 2023 does have some new proposals that could end up burning a bigger hole in your pocket.1. Pay 20% tax at source if you’re sending money abroadBanks remitting funds overseas will now have to collect tax at source (TCS) at 20% without the applicability of any threshold limit. So, whether you are buying a house in Dubai or meeting the day-to-day expenses of your child studying abroad or investing in global stocks and bonds or opting for a foreign tour package, it will pinch your pocket. Education fees and health expenses, however, are exempt.Earlier, in such cases, the remitting bank collected tax at source at 5% only if the amount or aggregate amount being remitted in a financial year exceeded Rs 7 lakh. Further, the withholding tax applied only on the amount in excess of Rs 7 lakh. [Thus if Rs 10 lakh was being remitted, only Rs 3 lakh was subject to the tax collection norms.] medium97542620But these norms have now changed. The upfront payment can, of course, be recouped later – the taxpayer can adjust the amount withheld as TCS against his tax liability, when filing the income-tax return. But the higher TCS dents the cash flow, as this adjustment happens only later. Refund, if any, arising out of the higher TCS follows later.However, when it comes to pure educational expenses — such as fees — the TCS norms remain unchanged. If the amount is being remitted out of an eligible loan, then the TCS remains at 0. 5% of the amount in excess of Rs 7 lakh. If the remittance towards education expense is not from a loan, the TCS is 5% of the amount, which is in excess of Rs 7 lakh.TCS norms relating to remittances for medical treatment also remain unchanged.Finance secretary TV Somanathan didn’t leave any doubt why the measure was proposed: the provision is to plug a “leakage”. Several wealthy Indians were buying property in Manhattan [US] or investing overseas but their tax returns often did not reflect the true income, he said.Revenue secretary Sanjay Malhotra said the 20% TCS rate was close to top tax rates because those sending money overseas are high earners. medium nocaption975438912. E-gamers lose as govt says all wins to attract 30% TDSGaming is no longer all fun. The government proposed tax deducted at source (TDS) on all net winnings from online gaming. In the process, it has done away with the earlier threshold of Rs 10,000. This is applicable from July 1, 2023. The purpose is to introduce transparency in taxation of online gaming.Under new Section 194BA of the income tax Act, TDS shall be deducted at 30% on the net winnings from online gaming either at the end of the financial year or at time of withdrawal. It has also prescribed the methodology to calculate net winnings. Such income is also required to be reported by the assessee under the head ‘Income from other sources’. As a result, even withdrawals of net winnings of as low as Rs 500 can now face TDS.“When you take out the money from the winning accumulated pool, the withholding tax would be levied on that,” revenue secretary Sanjay Malhotra said.He said the move came after it came to the notice of the tax department that some online gaming companies were keeping the winning amount lower than the threshold so that they are not covered under the TDS provision. medium97543016The gaming industry has cheered the move to clear regulatory uncertainty and believes this will differentiate them from betting/gambling. “By allowing TDS to be calculated either at the end of the financial year or at withdrawal, the government has streamlined settlements and returns for users. Users who play multiple games will only have to pay tax at year-end, eliminating the need to pay tax on notional credit,” Vikash Sureka, CFO, Mobile Premier League, said.However, players and users of online gaming apps will now have to provide PAN to the gaming companies, according to tax experts.Untitled Carousel 975231273. Capital gains tax benefit on luxury home sale cappedPlanning to sell your luxury home to buy another one with an eye on a hefty profit? Here’s why you may need to do a rethink. Long-term capital gains (LTCG) arising on sale of an asset is exempt from tax if the capital gain/sale consideration is reinvested in a new residential house. Many high net worth individuals were taking advantage of this exemption by purchasing very expensive residential houses. In order to prevent this, a cap of 10 crore has been introduced on calculating the exemption in Budget 2023. Which means, any reinvestment of the sale proceeds exceeding Rs 10 crore will now not fetch you tax deduction.A memorandum issued by the finance department stated that the primary objective of sections 54 and 54F of Income-Tax Act, 1961, was to mitigate the acute shortage of housing and to give an impetus to house-building activity. However, the department said, it had been observed that high net-worth assessees were making claims of huge deductions under these provisions by purchasing ultra-deluxe residential houses, thereby defeating their very purpose. The Budget has, in this backdrop, fixed a limit on the maximum deduction that can be claimed by an assessee under these sections at Rs 10 crore. medium97543565Experts had mixed reactions. Niranjan Hiranandani, vice-chairman of National Real Estate Development Council (NAREDCO) and chief managing director, Hiranandani Group, said that a higher personal tax rebate of 37% (up from 25%) on income of more than Rs 5 crore would allow additional disposable income in the hands of the discerning homebuyers to be invested back in a safe asset — “home”.In a statement, the Confederation of Real Estate Developers' Associations of India (CREDAI) said that capping the deductions from capital gains at Rs 10 crore could see some moderation in the luxury housing demand. However, lower surcharge rates will provide the required fillip to the sector.The Budget has also disallowed the clubbing of interest payments on the loan taken to acquire a property with its cost of acquisition. Therefore, when the acquired property is sold, the interest cost can no longer be a part of the cost of acquisition in calculating the capital gains.The existing provisions of sections 54 and 54F allow deduction on the capital gains arising from the transfer of long-term capital asset if an assessee, within a period of one year before or two years after the date on which the transfer took place purchased any residential property in India, or within a period of three years after that date constructed any residential property in the country.The ambit of Section 54 is limited to capital gains arising out of sales of a house property, but under Section 54F, the deduction is available on long-term capital gains arising from the transfer of any long-term capital asset, except a residential house, if the net consideration is reinvested in a residential house. The Budget has also amended the sub-section (2) of Section 54 and sub-section (4) of Section of 54F, which deal with the deposit in the Capital Gains Account Scheme. Under this, the capital gains amount deposited under the scheme, before it is utilised to buy another house, does not attract capital gains tax. It is proposed to cap the deposits against the capital gains up to Rs 10 crore only in the tax-savings deposit scheme.For preventing a double deduction claim on the interest on the borrowed capital for acquiring, renewing or reconstructing a property, the amount of any interest payable on the capital is allowed as a deduction under the head "income from house property" under section 24 of the Act.The department said that some assessees had been claiming double deduction of interest paid on the borrowed capital. To end this, the Budget has provided that the cost of acquisition or the cost of improvement shall not include the amount of interest claimed under Section 24.Untitled Carousel 975399754. Rs 5L life policy will come at a premiumSum received under a life insurance policy (including bonus on such policy) is exempt from tax if the premium amount does not exceed 10% of the actual capital sum assured in any year. This tax exemption will now no longer be available on maturity benefits if the aggregate annual premium paid by an individual is above Rs 5 lakh for life insurance policies issued on or after April 1, 2023. The move makes buying insurance for tax breaks even less attractive for younger people as the new tax regime – without any exemptions – now has greater lustre. medium97544272The move will not apply to death benefits under the policy. Also, United Linked Insurance Plans (Ulips) will remain unaffected by the change, which will be with prospective effect – that is, it will be applicable for policies issued after March 31, 2023. As the exemptions have been withdrawn for “aggregate premium”, buyers will not be able to break up policies into smaller values to enjoy tax benefits.The proposal has disappointed insurers as buyers may choose more liquid investments for their savings. “World over, tax benefits go hand in hand with life insurance as people need the nudge to buy life cover. The Rs 5 lakh cap is low, given that inflation is still impacting the middle-class category. Also, it would have been good to exempt renewals from the new rules,” said Vibha Padalkar, MD & CEO, HDFC Life.Nilesh Sathe, former member, Insurance Regulatory and Development Authority (IRDAI), described the move as retrograde for the insurance sector and said it would deflect savings from insurance to non-financial instruments.