Mr. Dindayal Dhandaria and Mr. Naveen Kumar Dhandaria (Chartered Accountants) focus on the anomalies or unintended oversights in the Finance Bill, 2023. The author apprises that as per the new Section 115BAC introduced by the Finance Bill, 2023 read with Section 87A no income tax would be payable on an income of INR 7 Lacs; They illustrate that having no marginal relief is disadvantageous for a person having income which marginally exceeds the limit of 7 Lacs as compared to person with income of 7 Lacs and urge for marginal relief for a person having slightly more income than the prescribed limit to avoid the unintended result. They further touch upon the contradictions in the provisions of the Finance Bill, 2023 with the Budget speech of the finance minister. They highlight that the Finance Minister stated that, “persons in the new tax regime, with income up to INR 7 lakh will not have to pay any tax”, however a person having income upto INR 7 lacs may have to pay taxes if his/her income is to be calculated considering the other sections of Chapter XII, which is not the intention of the Hon’ble Finance Minister. They suggest that in order to be in line with the assurance of the Finance Minister, the above situation needs to be taken care of.

Anomalies or unintended oversights in Finance Bill, 2023

1. NO MARGINAL RELIEF FOR TAX PAYABLE UNDER SECTION 115BAC

The proposed new section 115BAC read with section 87A provide that no income tax would be payable on an income of INR 7,00,000.  As the tax payable on the income of INR 7,00,000 equals the rebate admissible under section 87A. Effectively, a taxpayer gets a relief of INR 26000 including Health & Education Cess @ 4% on income tax and his “carry home income remains unaffected at INR 7,00,000.  But as no marginal relief is envisaged in case of a person having income exceeding this limit, such a person will be in disadvantageous position as compared to a person having income upto INR 7,00,000.  For example, if a person’s income is INR 7,10,000, he will be liable to pay tax amounting to INR 27040 (including H.E. Cess) and his net carry home amount would be INR 682960. 

So, marginal relief should be provided to take care of the above unintended result.

2. PROVISIONS CONTRARY TO THE SPEECH OF THE FINANCE MINISTER

The Hon’ble Finance Minister in her budget speech in para no. 146 stated that “persons in the new tax regime, with income up to INR 7 lakh will not have to pay any tax”.

But this assertion does not hold good because the proposed sub-section (1A) of section 115BAC provides that the provisions of this section shall be subject to the provisions of Chapter XII.  The said sub-section (1A) is reproduced below:  

“(1A) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the incometax payable in respect of the total income of a person, being an individual or Hindu undivided family or association of persons (other than a co-operative society), or body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2, other than a person who has exercised an option under sub-section (6), for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2024, shall be computed at the rate of tax given in the following Table, namely:— …………..”

[emphasis added]

Section 115BAC forms part of Chapter XII which consists of 28 other sections numbering from section 110 to 115BBE.  If a person’s income is to be calculated considering these other sections of Chapter XII, the person having income upto INR 7 lakh would have to pay tax which is not the intention of the Hon’ble Finance Minister.

Consider the following example:

From above example, it is seen that although the person’s income is INR 7 lakhs, he will have to pay income tax amounting to INR 10000. 

In view of the Finance Minister’s assurance, the above situation needs to be taken care of.