Finance Bill 2023

Why in news?

Recently, the Lok sabha has passed the Finance bill 2023 with 64 amendments.

What are the key highlights of the Finance Bill 2023?

• Capital gains - Capital gains from debt funds, international funds, fund of funds and gold funds, irrespective of their holding period, will be taxed at an individual’s relevant tax slab.
• Mutual funds – Mutual funds having less than 35% Assets Under Management (AUM) in domestic equity to lose indexation benefit, to be taxed as short-term capital gains.
• Securities transaction tax (STT) - There has been hike in STT taxes.
• Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) - Only the sum received in excess of the initial investment will be taxed as income from other sources.
• GST appellate tribunal - The amendments intends to set up of a GST appellate tribunal (GSTAT) with one principal bench and several State benches.
• Foreign tours - RBI is being requested to bring payments for foreign tours through credit cards within the ambit of Liberalized Remittance Scheme (LRS).
• GIFT city - Offshore banking units operating in GIFT city to get 100% deduction on income for 10 years.
• Foreign (non-resident) companies -Tax on royalty or technical fee earned by non-resident companies hiked from 10% to 20%.

How will the amendment in the finance bill 2023 affect debt mutual funds?

• Differentiation in debt fund – Following the latest change, the differentiation in debt fund taxation, for a holding period of under 3 years, and of 3 years or longer years, will no longer hold.
• Capital gain – Any capital gain on redemption of debt funds bought on or after April 1, 2023, will be taxed at the income tax slab rate.
• Taxation perspective – With the tax arbitrage between debt funds (capital gains), bonds and FDs (interest income), the 3 are now at par from a taxation perspective.
• In addition to the taxation of interest, listed bonds also attract capital gains tax.
• Short-term capital gains – The holding period of up to 1 year, from listed bonds are taxed at your income tax slab rate.
• Long-term capital gains – They are taxed at 10% without indexation.
• It is the interest rather than the capital gain that is a more important source of income.
• Accrual-based taxation – It helps avoid the possibility of inquiry from the income tax department for a mismatch of data reported to the income tax department and income offered to tax.
• Debt fund investments – It can help long-term investors postpone their liability.
• Indexation benefit – It was used to bring down the tax liability substantially for such investors.
• Better than FDs – From the perspective of ease of any time of withdrawal, debt mutual funds continue to score over FDs, because premature withdrawals from FDs attract a penal rate of interest.
• Exit loads – Some debt funds have an exit load, but for very short periods.

References

1. The Hindu Business Line | Finance Bill 2023