Finance Bill passed without discussion
3 min read 24 Mar 2023, 10:54 PM ISTThe amendments to the Finance Bill include the imposition of short-term capital gains tax on the interest income from debt mutual funds and higher securities transaction tax (STT) on options and futures trade, among others
PremiumThe Finance Bill 2023 was approved by a voice vote in Lok Sabha on Friday, enacting the tax proposals of the 2023-24 Union budget without discussion, as opposition protests continued to disrupt the budget session of Parliament.
With this, the budgetary exercise by the Lok Sabha is completed. The lower house cleared the vote on account and appropriation bills on Thursday, allowing the Centre to draw funds from the Consolidated Fund of India for expenses in the next financial year.
The amendments to the Finance Bill include the imposition of short-term capital gains tax on the interest income from debt mutual funds and higher securities transaction tax (STT) on options and futures trade, among others.
Among over 60 amendments, one eliminates the long-term capital gain tax benefits for debt mutual funds that hold less than 35% of assets under management in equities.
“The proposed move seems to bring taxation of such mutual funds on par with bank deposits which are taxed at slab rates," said Tapati Ghose, Partner, Deloitte India.
Currently, capital gains arising from the transfer of mutual fund units, other than equity-oriented funds held for more than three years, are considered long-term and are taxed at 20% with indexation benefits.
The government is also proposing to increase the securities transaction tax (STT) rate from 0.05% to 0.0625% on the sale of options on a turnover of ₹1 crore. In absolute terms, the levy will rise to ₹5,000 from ₹6,250 earlier. STT on futures contracts will rise from 0.01% to 0.0125%, thus attracting a levy of ₹1,250 on ₹1 crore turnover, up from ₹1,000 earlier.
Further, in a bid to assuage unit holders of REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts), the Centre has made changes to the budget proposal to tax distribution from the business trust as income from other sources. This is now proposed to be treated as a return of capital by reducing the cost of acquisition of the units, as far as the issue price of the units, an official said, adding that any amount received in excess of the issue price would be taxable as income.
Providing clarity on the implementation of angel tax, officials said that the tax will come into effect from 1 April 2024 for the assessment year 2024-25 or FY 2023-24, but added that concerns raised by stakeholders in the implementation of this proposal would be addressed. “The draft rules related to valuation shall be shared with the stakeholders for their inputs in the next month itself, viz April. Exclusions, as already provided to domestic Venture Capital Funds etc., shall also be considered for similar overseas entities," the official said.
Centre has also proposed to levy tax collected at source on all liberalized remittance schemes (LRS), even if done within India, to bring parity in treatment. At present, there is tax collected at source on LRS if it is remitted out of India. Therefore, when money is remitted by a resident to GIFT City, there is no tax collected at source.
A 20% tax collected at source (TCS) for foreign remittances through LRS scheme on overseas tour packages and on remittances other than for education purposes or medical treatment would also come into force in a bid to attract investments at the International Financial Services Centre (IFSC) in Gift City, Gujarat.
While introducing the bill, Sitharaman said that the government would set up a committee under the finance secretary on the pension system, which will look into addressing the needs of employees while maintaining fiscal prudence.
“I propose to set up a committee under the finance secretary to look into the issue of pensions and evolve an approach which addresses the needs of employees while maintaining fiscal prudence to protect common citizens," she said.
The finance minister added that the Reserve Bank of India had been asked to look into issues related to credit card payments for foreign tours that are not being captured under the remittances scheme and tax collection at source.
“It has been represented that payments for foreign tours through credit cards are not being captured under the Liberalised Remittance Scheme, and they escape tax collection at source," she said while moving the bill.
Among the amendments, the government has also proposed to amend Section 109 of the CGST Act 2017, leading to the formation of GST Tribunals, a move that would come to the relief of pending matters before the GST Appellate Tribunal.
Further, in a move to incentivize the adoption of the new income tax regime, the finance ministry has proposed that in case of income exceeding ₹7 lakh per annum, the additional tax would not be more than the income itself.
“Working out the math, an individual having income up to around ₹7,27,000 could stand to benefit from this marginal relief," said Sandeep Jhunjhunwala, partner, Nangia Andersen LLP.
