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The Finance Bill, 2023, was passed in Parliament on 24 March, with 64 additional amendments. Of these, 34 pertain to the Income Tax Act and the remaining to indirect tax laws like the customs and goods and services tax (GST).

Let us understand some of the important and significant amendments before the Bill receives the assent of the President to become the Finance Act 2023.

The first important amendment is in respect of taxability of any gains or profits arising on transfer, redemption or maturity of debt mutual funds. The Finance Bill initially introduced on 1 February, proposed to insert a new section 50AA providing for the taxability of any gain on transfer, redemption or maturity of market linked debenture (MLD) on or after 1 April, as a short-term capital gain, irrespective of the period of holding.

Now, the coverage of section 50AA has been further expanded to include the units of specified mutual funds, wherein not more than 35% of the total proceeds are invested in equity shares of domestic companies or, in other words, debt mutual funds, acquired on or after 1 April. Thus, any gain or income arising on transfer, redemption or maturity of a unit of debt mutual funds, acquired on or after 1 April, will also be considered as short-term capital gains, and taxable at the applicable slab rate of the investor, irrespective of the period of holding. Indexation benefit is also not available in case of short-term capital gain.

Presently, the units of debt mutual funds held for more than three years are taxable as long-term capital gains and are taxable at 20% plus applicable surcharge and cess, along with the indexation benefit.

It will be interesting to see whether the Silicon Valley Bank (SVB) crisis in the US has anything to do with this amendment, so as to make Indian bank fixed deposits an attractive investment option and at par with the long-term debt funds, from the taxation point of view, and thereby prevent any bank run in India.

The second significant amendment is in respect of provision of ‘marginal relief’ in the new personal tax regime. The marginal relief in respect of taxpayers having their annual gross total incomes of 7,00,005 and up to 7,29,000, and opting for the new tax regime, has now been provided such that, at the income levels between 7,00,005 and upto 7,29,000, the income tax payable will get restricted to the amount of income which exceeds 7,00,000 only, and not higher than that. (This aspect has been analysed in detail in my earlier column in Mint titled‘A case for marginal relief in the new regime’ dated 16 March.)

The third important amendment is in respect of further clarity on the taxability of distribution of income by Reit (real estate investment trust) and InvIT (infrastructure investment trust) to unit holders.

The initial Finance Bill 2023 has inserted a new section 56(2)(xii) to tax the distribution of the ‘specified sum’ in the form of interest, dividend and rental income and repayment of debt by InvITs and reits to the unit holders, as income from other sources, at their respective tax slab rates.

Now, a specific formula has also been prescribed to compute the ‘specified sum’, wherein the specified sum = A-B-C.

A is the cumulative distributions made to the unit holders, other than distributions covered under the provisions of section 10(23FC)/ 10(23FCA) and not chargeable to tax under Section 115UA(2); B is the Issue price (cost of acquisition) and C is the amount already taxed in any of the previous years.

Further, it has also been provided that if B+C is greater than A, then the specified sum will be nil.

On the indirect tax front, the existing section 109 of the Central GST, or CGST, Act has been substituted to provide for the Constitution of GST appellate tribunals with establishment of the principal bench in New Delhi and various state benches.

Mayank Mohanka is the founder of TaxAaram India, and a partner at S M Mohanka & Associates

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Updated: 27 Mar 2023, 06:28 AM IST
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