Home/ Economy / Changes in tax law to net a bigger haul

NEW DELHI : A slew of tax changes, including removing exemptions and expanding the scope of tax deducted or collected at source, is set to increase the number of payers and aid in collecting more taxes, experts said.

Anti-avoidance measures proposed in the Finance Bill 2023 are expected to help make up for part of the revenue the government will forego next fiscal due to the direct tax relief offered under the new personal income tax regime.

The fine print of the bill shows 14 specific amendments to the Income Tax Act aimed at checking tax avoidance.

Among the key proposals are: a tax on gifts above 50,000 in value received by persons who are not ordinarily resident in India, amending provisions relating to distribution of funds by business trusts to unit holders, removal of exemption to news agencies, removal of exemption from tax deducted at source on payment of interest on listed debentures to residents, and capping relief on capital gains tax in the case of property.

The measures suggest that the amendments were based on the tax avoidance practices detected by the income tax department. In the case of Real Estate Investment Trusts (REIT) and Infrastructure Investment Trusts (InVIT), commonly referred to as business trusts, the government has sought to prevent double non-taxation. The proposal is to levy tax on the repayment of debt by business trusts to their unit holders.

Payment of interest on listed debentures was exempted from tax deducted at source (TDS) earlier, which led to under-reporting of interest income by the recipient.

Hence, this exemption is proposed to be removed now which shall widen the tax base, explained Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm.

Another proposal is to include a limit to claim capital gains exemption to 10 crore, which will impact taxpayers buying expensive homes since there was no such restriction previously. Preventing the misuse of tax exemption on life insurance policies by high-net-worth individuals is another anti-avoidance measure. The idea is to tax the benefits of policies involving large premium contributions.

The Centre seeks to raise 18.2 trillion in direct taxes in FY24, an improvement of 10.4% over what is expected to be collected in the current fiscal. It expects revenue buoyancy—growth of revenue collection over economic growth rate—to be higher in the case of indirect taxes than in direct taxes next fiscal. Also, the government expects direct taxes to account for over 54% of the gross tax revenues next year.

The highlight of the budget was incentivising the new personal income tax regime with fewer exemptions. Under this, tax advantage no longer acts as an incentivising factor for channelising investments for securing life, health, and housing.

“However, the goals of a simplified tax regime and increased capital market participation, if realised, would lead to desirable outcomes," said S. Vasudevan, Executive Partner at law firm Lakshmikumaran & Sridharan Attorneys.

Gireesh Chandra Prasad
Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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Updated: 07 Feb 2023, 12:16 AM IST
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