India’s finance minister Mrs Nirmala Sitharaman presented a new finance bill to the Parliament on 24 Mar, 2023. It is a proposal by the government containing changes to various laws related to taxation, public expenditure, and borrowing.
The Finance Bill was passed without discussion as Parliament continued to remain stalled over Opposition demands for a probe by a joint parliamentary committee into allegations against the Adani Group by the Hindenburg report. It will now go to the Rajya Sabha and will become law once the President gives her assent.
Let's dive into the most important changes and how they could impact you.
Debt Fund Lose LTCG Benefit (Long-Term Capital Gains)
If you're planning to invest in a debt fund, do it before 31st March to claim LTCG. Otherwise, the new financial year will tax debt mutual fund investments at higher rates, and there will be no LTCG benefits for debt funds with less than 35% in equities. Gains from investment in debt funds—where not more than 35% is invested in equities—will now be treated as STCG (Short-Term Capital Gains) and taxed at the taxpayer’s applicable slab. This will bring debt funds on par with bank deposits, ending the arbitrage they have enjoyed.
Impact: According to experts, the withdrawal of the LTCG tax benefits available to debt mutual funds will deal a blow to this popular investment, which will now be taxed on par with bank deposits. This will impact gold funds and international funds predominantly invested in debt. The government aims to end tax arbitrage between similar instruments which means banks will see an increase in long term deposits like fixed deposits, PPF, etc.
Increase in Securities Transactions Tax
One change is related to securities transactions tax (STT) on futures and options. STT is a tax that is charged when you buy or sell certain financial instruments, like stocks or futures contracts. The rate of STT has been increased slightly on futures and options, which means that people will have to pay a slightly higher tax when they trade these types of financial instruments.
Impact: The Finance Minister, Nirmala Sitharaman, who moved the amendments, raised the securities transactions tax (STT) rate on futures to 0.0125% from 0.01% and on options to 0.0625% from 0.05%. This may result in lower F&O trading volume on exchanges but it could also potentially help the government raise more revenue.
20% Withholding Tax On Royalty/ Technical Fee Payments
The Finance Bill has been amended to double the withholding tax rate on royalty and fees for technical services payments to non-residents from 10% to 20%. This means that non-residents who provide these types of services to Indian companies will have to pay more tax. Additionally, the 20% tax collection at source has been extended to all remittances, including payments made by credit cards, even if they are within India.
Impact: India will be able to levy the tax treaty rate of 15% on US and UK companies. Non-treaty countries will face the higher 20% withholding tax. Also, People who make certain types of payments, like credit card payments, will have to pay a certain percentage of tax at the time of the transaction. This may impact the cost of these transactions and potentially affect the outbound tourism industry, foreign stock investments.
Benefits for International Financial Services Centres (IFSCs)
The amendments provided several benefits and incentives for International Financial Services Centres (IFSCs) that will make them more attractive to investors. The bill introduced a beneficial withholding tax rate of 10% under Section 115A for dividends received by non-residents from IFSC units under Section 80LA.
Impact: The move is expected to help incentivise investments from non-residents into IFSC and attract more investors to the Gujarat GIFT city. This will also create more job opportunities in the GIFT city and will create more funding options for investors.
TDS on Online Gaming
The Indian government has proposed new rules to define online gaming and levy a tax of 30% on net winnings from online games, as outlined in the Finance Bill 2023. The new section, which will come into effect from 1 April 2024, removes the minimum threshold of ₹10,000 for levying TDS on winnings from online gaming.
Impact: The gaming industry has welcomed the new sections on online gaming as it distinguishes them from online gambling although some sections have requested the government not to remove the minimum threshold. It remains to be seen how these changes will affect specific online gaming platforms such as Dream11, My11Circle, etc. Most users win less than ₹10,000 and play small-ticket matches. Applying a 30% tax on their winnings may cause them to not even recover their initial game cost, causing the companies to lose these users.
Last but not least and the most anticipated change….
Personal Income Tax
The revised basic exemption limit under Section 115BAC is ₹3,00,000. This means that for every additional ₹3,00,000 of income, the next slab rate will be applicable. The highest slab rate of 30% shall continue to apply to income above ₹15,00,000. The threshold limit for total income eligible for rebate under Section 87A has been proposed to be increased from ₹5,00,000 to ₹7,00,000 for assessees opting for the new tax regime.
Impact: These changes could potentially benefit individuals with lower incomes below ₹15 lacs by increasing their rebate eligibility and reducing their tax liability. However, individuals with higher incomes may see an increase in their tax liability due to changes in slab rates.