Summary of Amendments moved to Finance Bill, 2023

Marginal relief

It has been proposed to provide marginal relief for taxpayers adopting new tax regime and having income exceeding Rs 7.00 lakhs. As per the Finance Bill, 2023, it was proposed that there would be no requirement to pay tax under the new regime in case the income does not exceed 7 lakh.

However, there was no marginal relief prescribed with the implication that the once the income exceeds Rs. 7 lakh (say Rs. 7.05 lakh), the requirement to pay tax would have triggered and the same could have resulted in the person falling within the income range of Rs.7,00,001 to Rs.7,29,000 to be worse of than the person having income of Rs. 7 lakh.

To remove this anomaly, marginal relief has now been proposed to be prescribed which would mean that the tax payable shall not exceed the income exceeding Rs. 7 lakh. This would bring such individuals falling within the income range of Rs.7,00,001 to Rs.7,29,000 at par with the person having income of Rs. 7 lakh.

Capital gain in respect of debt funds deemed to be STCG

Capital gain arising from debt based mutual funds (where investment in equity shares of domestic companies is not more than 35% of total proceeds of the mutual fund) acquired on or after 01.04.2023 to be deemed to be short term capital gain. The implication will be that the lower rate of 20% which is applicable in respect of LTCG shall not be applicable and such gains shall be taxable as per normal slab rate.

Further, no benefit of indexation shall be available as well. Thus, pure debt fund will lose its attraction. However, this amendment shall only be applicable in respect of investments made post 01.04.2023 and there shall be no impact on investment made on or before 31.03.2023.

Tax on Royalty

FTS rate under section 115A increased to 20% (from 10%). This will impact non-residents of the countries with whom India doesn’t have treaty since tax rate on such income is by and large 10%. So now treaty will become more relevant. Non-residents of countries with whom India doesn’t have tax treaty will now be required to pay higher rate of 20% on income from Royalty and FTS.

TCS for LRS

It has been proposed that TCS under section 206C(1G) to be collected in case of remittance under LRS even if remittance is not made out of India. Earlier, TCS was collectible only if LRS is made out of India.