Finance Bill 2023 Amendments: Here Are The Key Changes

Amid protests by members of the opposition, the central government passed the Finance Bill 2023 with 11 new provisions on Friday.

The amendments include changes pertaining to the GST Tribunal, a hike in the securities transaction tax, changes to the taxation on REIT/InvITs, and the levy of Tax Collected at Source on all Liberalised Remmittance Schemes within India, among others.

"The Finance Bill brought in 10 main provisions, which are helpful for middle class and for communities as a whole and for ease of doing business," Finance Minister Nirmala Sitharaman said. "Eleven new ones are being brought in now after stakeholder consultations, which have helped improve the Finance Bill to better represent our society."

Here are some of the key changes that have been made:

Before:

The tax on income from debt mutual funds would be charged at the applicable rate, as it is interest income.

Now:

Gains arising from multiple mutual fund categories, including debt mutual funds, will be treated as short-term capital gains. The amendment includes "specified mutual fund schemes" under the same clause. These mutual fund schemes include all those that have an equity allocation of less than 35%.

Before:

The Bill had proposed that distributions by Real Estate Investment Trusts and Infrastructure Investment Trusts would be classified as 'repayment of debt' and be taxed in the hands of unit-holders effective April 1, 2023.

Now:

Distributions will be treated as a return of capital, i.e., a reduction from the cost of acquisition to the cost at which the unit was issued. Any excess from issue price will be taxed as income.

Before:

Option traders paid Rs 5,000 as STT for every Rs 1 crore worth of turnover.

Now:

The STT rate is proposed to be changed from 0.05% to 0.0625%.

Option traders will have to pay Rs 6,250 for every Rs 1 crore worth of turnover.

On the sale of futures, STT has been hiked to Rs 1,250 on a turnover of Rs 1 crore, against an earlier levy of Rs 1,000. This indicates a 25% hike.

The amendments also include the language pertaining to the Goods and Services Tax Appellate Tribunal—that was announced after the 49th GST Council—that were missed in the budget speech.

• Principal bench of the tribunal at New Delhi will consist of a president, a judicial member, a technical member from the central government and a technical member from the state.

• The state benches will consist of two judicial members, a technical member from the central government, and a technical member from the state.

• The principal bench and the state bench shall hear appeals against the orders passed by the appellate authority or the revisional authority, but cases related to the place of supply will be heard only by the principal bench.

• Cases, where the disputed amount is less than Rs 50 lakh, and do not have a question of the law will be heard by a single member.

There is a proposal for marginal relief on tax liability for those who are just above the Rs 7 lakh per annum cut-off range, according to an official familiar with the matter.

Under the new regime, a person with an income of up to Rs 7 lakh does not have any tax liabilities. However, a person with marginally more income would fall under the first tax bracket.

For example, a person with an income of Rs 7,00,100 would have to pay a tax of Rs 25,010, thus creating a tax liability for someone earning just Rs 100 more.

Under the proposal, the tax liability of such a person would not be more than the income that exceeds Rs 7 lakh (Rs 100 in this case), according to an official, who spoke on condition of anonymity and cited this example.

No changes will be made on the Angel tax provision. The original proposal of the Finance Bill will come into effect on April 1, 2024, for assessment year 2024-25 (FY23-24).

Draft rules related to how the Angel Tax will be implemented will be released on April 1, 2023, the ministry said. Exclusions, as already provided to domestic venture capital funds, etc., shall also be considered for similar overseas entities, the person quoted above said.