The Finance Bill 2023, which contains various Budget 2023 proposals related to taxation and government expenditure, was passed on Friday in the Lok Sabha, with 45 amendments. A total of 20 more Sections have been added to the amendments. Here are the highlights of the Finance Bill 2023 and how industry people and experts react to the Finance Bill:
Relief for Individual Taxpayers: It has been proposed to provide marginal relief for taxpayers adopting new tax regime and having income exceeding Rs 7 lakh. As per the Finance Bill, 2023, it was proposed that no tax will be payable under the new regime in case the income does not exceed 7 lakh. However, there was no marginal relief for those having income above Rs 7 lakh. Marginal relief has now been provided. With this, those having income in the range of Rs 7,00,001-Rs 7,29,000 will be treated at par with the person having an income of up to Rs 7 lakh.
Debt MFs to be Subject To STCG: Capital gains arising from debt-based mutual funds (where investment in equity shares of domestic companies is not more than 35 per cent of the total proceeds of the mutual fund) acquired on or after April 1, 2023, will now be subject to short-term capital gain. No benefit of indexation shall be available as well.
STT On Futures and Options Contracts: On the sale of options contracts, the STT now stands at Rs 6,200 on a turnover of Rs 1 crore, indicating a 25 per cent hike as compared with Rs 5,000 earlier. STT on the sale of futures contract has been increased to Rs 1,250 on a turnover of Rs 1 crore, a 25 per cent hike as compared with Rs 1,000 earlier.
Tax on Royalty/ FTS Rate Under Section 115A Increased to 20% (from 10%): This will impact non-residents of the countries with whom India does not have a tax treaty, as the tax rate on such income is by and large 10 per cent. Non-residents of the countries with whom India doesn’t have tax treaty will now be required to pay higher rate of 20 per cent on income from Royalty and FTS.
TCS for Liberalised Remittance Scheme (LRS): It has been proposed that Tax Collected At Source (TCS) under Section 206C(1G) will be collected in case of remittance under LRS even if remittance is not made out of India. Earlier, TCS was collectible only if LRS is made out of India.
TCS Rate In Absence of PAN Restricted to 20%: Under Section 206CC, in absence of PAN, TCS is collectible at the rate of 5 per cent or twice the rate specified in the relevant provision. It has been proposed to restrict the higher rate of TCS collectible at 20 per cent. This amendment has been proposed with effect from July 1, 2023.
TCS Rate in Case Non-Filer of Tax Return Restricted to 20%: Under Section 206CCA, in case of non-filer of return, TCS is collectible at rate of 5 per cent or twice the rate specified in the relevant provision. It has been proposed to restrict the higher rate of TCS collectible at 20 per cent. This amendment has again been proposed with effect from July 1, 2023.
Changes to Incentivise IFSC: (i) No surcharge and cess on income earned by GIFT Category III from securities under Section 115A(1)(a); (ii) provision for tax-neutral reallocation of any investment vehicle in which ADIA is sole direct or indirect shareholder/ unitholder to GIFT City introduced; power to notify any other funds for tax neutral reallocation to GIFT City added Section 47(viiad); (iii) Dividend distributions from IFSC unit to be taxable at 10 per cent (as against 20 per cent) (iv) Interest income on borrowing by foreign company from long-term bond or rupee denominated bond listed on IFSC stock exchange taxable @ 9 per cent
Changes Related To InvITs / REITs: (i) SPV not required to withhold on payment of interest on debentures; (ii) Exemption to sovereign wealth funds / pension funds for debt repayment from Business Trust introduced [section (10(23FE)]; (iii) Cost of unit holders reduced to the extent of distributions in form of debt repayment (unless such distributions are taxed as IOS); Investors in Business Trust pay 10% long-term capital gains tax on exit and don’t get benefit of full cost; (iv) No tax under IOS until distribution in form of debt repayment are upto amount at which units of Business Trust issued.
What Experts Say
Shashi Mathews, partner at IndusLaw, said, “The Finance Bill, 2023, has been passed by the Lok Sabha today. It is interesting to note that the government had proposed quite a few amendments to the Finance Bill, as was presented during the Budget Speech.”
He added one of the most expected amendments relating to GST tribunal, which was missed out during the Budget speech, has now been inserted in the Act. Under the revised provision pertaining to GST tribunal, the government has now included a judicial member for the Principal Bench of the tribunal and two judicial members for the State benches.
On debt MF provision, Tapati Ghose, partner at Deloitte India, said, “The amendment to the Finance Bill 2023 has proposed to treat gains from transfer of units of specified mutual funds as short term and tax at slab rates. This is in addition to taxation of market-linked debenture proposed in the original bill. The proposed move seems to bring taxation of such mutual funds on par with bank deposits which are taxed at slab rates.”
Sandeep Bagla, CEO of Trust Mutual Funds, said, “There is likely to be no impact in the short term but could impact the ability of mutual funds to attract debt flows in the long term.”
Gouri Puri, partner at Shardul Amarchand Mangaldas & Co, said, “In a surprise move the Government has increased the withholding tax rate on royalties and fee for technical services paid to non-residents from 10 per cent to 20 per cent under India’s domestic tax law. Tax treaty benefits will become more critical now to avail a reduced withholding tax rate. Foreign entities will need to evaluate their commercial substance to be able to claim such treaty benefits.”
Puri added that this may also increase the cost of import of technology in cases where Indian companies are grossing up withholding taxes and treaty benefits are not available.
Vishal Goenka, co-founder of IndiaBonds, said, “Taxation rules across bond investments should be uniform as this simplifies the choice for investors who should focus on analysing the investment itself rather than the taxation disparity. We welcome the proposed changes via the Amendments to the Finance Bill as this creates a uniform level playing field between debt mutual fund and direct bond investment. We always encourage investors to have fixed income in their portfolio for adequate diversification and the proposed changes will make direct bond investments by individuals more attractive.”
On proposals related to Reit and InVIT, Punit Shah, partner at Dhruva Advisors said, “The amendment of taxing only the upside over and above the cost of the units, where no redemption is involved, is a welcome move. However, it would have been more appropriate to tax such gain as capital gain rather than ordinary income.”
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