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March 25, 2023

Finance Bill Passes in Lok Sabha with Important Changes

Finance Bill Passes in Lok Sabha with Important Changes

Under the new income tax system, India would tax investments in debt mutual funds as short-term capital gains and royalty payments by local subsidiaries of multinational corporations at a higher rate while providing minimal relief to individual taxpayers. In addition, the Finance Bill, which was approved by the Lok Sabha on Friday after up to 64 revisions, increased the securities transaction tax rate on futures and options by 25%.
According to experts, the removal of the long-term capital gains tax incentives offered to debt mutual funds would have a negative impact on this well-liked investment because it will now be taxed at the same rate as bank deposits. According to the government, the action was taken to stop tax arbitrage between comparable instruments.


1. The Long-term capital gains benefit is lost by Debt Funds

Debt funds with less than 35% in equity will not receive the LTCG benefit under the Income Tax Act. After this amendment Income from debt funds will be taxed at the taxpayer’s marginal rate. Taxation that is equal to that on bank fixed deposits shall be applicable from FY2023-24. The banks may experience deposit inflows despite due to the setback on investments in debt funds

2. 20% TDS on Payments for Royalties and technical fees

Rates of TDS on payments to non-residents have been increased from 10% to 20%. This amendment will ensure that India will be permitted to impose on US the 15% tax treaty rate and UK because the domestic rate was 10%, which made it impossible to impose this fee. Non-treaty nations will also be subject to the higher TDS rate of 20%.

3. INVITS & REITS get cost diminishment

The budget has proposed taxing dividend from business trusts at the appropriate rate as income from other sources. With cost deductions, amendments suggest seeing these payments as a return of capital. Lower tax than proposed in the budget

4. Online Gaming TDS

TDS for online gaming shall be applicable from 1st April 2023. In case not followed, TDS to be deducted at twice the rate. It is a warning sign for the gaming companies to better adher to tax laws laid on internet gaming businesses.

5. Marginal relief for rebate under section 87A:

Under the new tax system, earnings up to Rs. 7 lakh are not taxable. The maximum amount of additional tax is the amount by which income surpasses Rs. 7 lakhs shall be Rs. 100 and not more than that. The amendment in Finance act ensures that those who make slightly more than Rs. 7 lakh are granted relief.

6. 25% Increase in STT On Future and Options

The Finance act has increased the securities Transaction Tax rate it is hiked from current rate of 0.05% to 0.0625% for options and from 0.01% to 0.0125% for futures. This will lead to an impact on the Future and options volumes on exchanges

7. IFSC (International Financial Service Centres) Tax Measures

IFSC dividends received by non-residents are required to deduct a 10% TDS. Extension of the 194LC benefit and waiver of the surcharge on capital gains obtained under GIFT Category III. Instead of 5%, there will be a 9% withholding tax on loan interest payments received abroad.

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