Amendment to Finance Bill 2023

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    • Recently, the Union Government has amended the Finance bill 2023 to simplify the tax system.

     Important Highlights Of The bill:

    • The Union Government has scrapped the long-term capital gains treatment (with indexation benefits) for income from debt mutual funds and other schemes that invest up to 35% in equity shares of domestic companies.
      • Previous to the amendment the investments were considered long-term investments and taxed at 20% with indexation benefits.
    •  Enhanced tax benefits to offshore banking units operating in GIFT city, offshore banking units to get a 100% deduction on income for 10 years. 
    • Tax on royalty or technical fees earned by foreign (non-resident) companies hiked from 10% to 20%. This would increase the cost of Imports in case of a lack of a bilateral treaty.
    • No change in tax on non-par savings insurance products ( ?5 lakh cap remains). 
    • No change in taxation REITS/InviTs despite representation (Income from REITS to be taxed as ‘income from other sources and not as capital gains). 
    • The securities transaction tax (STT) on the sale of options has been increased to ?2,100 on a turnover of ?1 crore against an earlier levy of ?1,700, an increase of 23.5%, while on the sale of futures contracts, STT has been raised to ?12,500 on ?1 crore of turnover against ?10,000 earlier, indicating a 25% hike.

    Effects Of the Amendment:

    • Increases the Tax burden on high net-worth investors and family offices who gained from the tax arbitrage under the existing tax regime
    • Investors will opt to put their money into bank fixed deposits, equity mutual funds, and hybrid funds that invest over 35% of their portfolios in equity and Sovereign Gold Bonds.

    How is a Money Bill different from a Financial bill? 

    • While all Money Bills are Financial Bills, all Financial Bills are not Money Bills.  For example, the Finance Bill which only contains provisions related to tax proposals would be a Money Bill. 
      •  However, a Bill that contains some provisions related to taxation or expenditure, but also covers other matters would be considered as a Financial Bill.

    Additional Information: Different types of Bills

    • Financial Bills: A Bill that contains some provisions related to taxation and expenditure, and additionally contains provisions related to any other matter is called a Financial Bill. Therefore, if a Bill merely involves expenditure by the government, and addresses other issues, it will be a financial bill.
    • Money Bills: A Bill is said to be a Money Bill if it only contains provisions related to taxation, borrowing of money by the government, expenditure from or receipt to the Consolidated Fund of India. Bills that only contain provisions that are incidental to these matters would also be regarded as Money Bills.
    • Constitution Amendment Bills: These are Bills which seek to amend the Constitution.
    • Ordinary Bills: All other Bills are called ordinary bills.

    Key Terms 

    • Long-Term Capital gains: For tax purposes, an Increase in the price of a savings instrument (Capital Gain) is treated at a lower rate if the instrument is held for more than three years.
    • Indexation: Indexation is used to adjust the purchase price of an investment to reflect the effect of inflation on it. For Example: Consider a capital gain of Rs. 50,000. Indexation considers The cost of inflation index (CII) and reduces the capital gain to a lower value, thereby saving the tax liability
    • Securities Transaction Tax (STT): It is a tax payable in India on the value of securities transacted through a recognized stock exchange.
    • REITS/InviTs: Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) are instruments that allow developers to monetise revenue-generating real estate and infrastructure assets while enabling investors to invest in these assets without actually owning them.

    Source: TH