The Finance Bill, 2023, passed on Friday in the Lok Sabha without discussion, is set to tax investors heavily from April 1.
The Bill, which gives effect to the tax proposals for FY24, was cleared amid the Opposition demanding a probe into the allegations against the Adani group.
A total of 64 amendments were proposed. These included the one that seeks withdrawing long-term capital gains tax benefits on certain categories of debt mutual funds and increasing securities transaction tax (STT) on selling options and futures contracts.
“The Finance Bill had brought in 10 main provisions helpful for the middle class and community as a whole and ease of doing business. The 11 new ones brought in now with stakeholder consultation have helped to improve the Bill,” said Union Finance Minister Nirmala Sitharaman while presenting it.
On STT, the finance ministry had clarified that tax on selling options had been increased to 0.062 per cent from 0.05 per cent and not from 0.017 per cent to 0.021 per cent as mentioned in the previous amendments to the Bill.
The previous amendment had left options traders confused because the instrument was being taxed at 0.05 per cent. The ministry later in the day clarified it was a “typographical mistake”.
Experts say the hike will affect high-frequency traders especially. “Any change in the cost structure has a material impact due to the thin spread in which such traders operate. Moreover, foreign portfolio investors (FPIs) don’t get any deduction for STT in capital gains computation on derivatives,” said Rajesh Gandhi, partner, Deloitte India.
Other than these, investment in debt mutual funds will be taxed as short-term capital gains from April 1, stripping investors of the long-term tax benefits that made this popular.
After the amendment, such gains from transfers of units of specified mutual funds will be treated as short-term and taxed at slab rates. This is in addition to taxing market-linked debentures, proposed in the original Bill.
Experts say the move will make debt investment like debt mutual funds and non-convertible debentures unattractive compared to equity.
The Bill paved the way for setting up a much-awaited appellate tribunal for resolving disputes on goods and services tax (GST).
Currently, taxpayers are filing writ petitions before high courts in the absence of a tribunal.
According to the Bill, the Benches of the tribunal will be set up in every state while there will be a Principal Bench in New Delhi to hear appeals related to “place of supply”.
While moving the Bill, the minister announced a committee would be set up under the finance secretary to look into the National Pension Scheme (NPS) for government employees. The Bill will now be sent to the Rajya Sabha.
Other key amendments
The Bill provided marginal relief and clarity to taxpayers. For those opting for the new tax regime, individuals earning a marginally higher income than the tax-free (with rebate) ceiling of ~7 lakh will continue to pay no tax. This means an individual having an income up to ~7,27,700 could stand to benefit from this relief.
Besides, it has proposed softening the tax impact on unit-holders in real estate investment trusts and infrastructure investment trusts.
The government has proposed providing a formula for calculating tax implications when distributions are made as “repayment of debt”. Currently, the entire amount classified as “repayment of debt” is proposed to be taxed.
On angel tax, the Bill does not offer respite for start-ups from its provision. This is expected to impact foreign investors.
However, it clarified the implementation of the tax. It said the changes would be for assessment year 2024-25 and financial year 2023-24. There was confusion about whether this took effect from April 1, 2024, or April 1, 2023.
Besides, there will be draft rules related to tax valuation, to be shared with stakeholders for their inputs, next month (April). Exclusions, as already provided to domestic venture capital funds, etc, will be considered for similar overseas entities.
On tax collection at source (TCS), which is currently applicable to the Liberalised Remittance Scheme (LRS) even within India, Sitharaman said the Reserve Bank of India would look at bringing payments made for foreign tours using the credit card under tax collection.
“The RBI is being requested to look into this with a view to bringing credit card payment for foreign tours within the ambit of the LRS and tax collection at source,” she said.
“It has been noticed that payment for foreign tours through the credit card is not being captured under the LRS and such payments escape tax collection at source.”
The two Houses of Parliament were stalled repeatedly. While the BJP has been demanding an apology from Congress leader Rahul Gandhi over his remarks in the UK, the Opposition wants a probe into the Adani row.
With inputs from agencies
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