Introduction
The Union Budget for 2023-24 is approved by both houses of Parliament with a total of 64 official amendments. We have summarised the key changes made to the Finance Bill:
Key Amendments
1. The new personal tax regime made room for marginal relief
The marginal relief has been provided to the taxpayers following the new personal tax regime, reducing the tax liability for individuals whose taxable income marginally exceeds by Rs. 7 lakhs. Those having an annual income of between Rs. 7.5 lakh and Rs. 7.78 lakh will benefit from this move. Let us consider the following example:
| Particulars | Amount (in INR) |
| Gross Total Income | 7,50,000 |
| Less: Standard Deduction | 50,000 |
| Taxable Income | 7,00,000 |
| Tax on Income up to Rs.3 lakhs | Nil |
| Tax on Income of Rs.3 lakhs to Rs.6 Lakhs @ 5% | 15,000 |
| Tax on Income of Rs.6 lakhs to Rs.7 Lakhs @ 10% | 10,000 |
| Total Tax on Taxable Income | 25,000 |
| Less: Rebate under Section 87A | 25,000 |
| Net Tax Liability | 0 |
Inferences: If taxable income, after the standard deduction, does not exceed Rs. 7 lakh, the individual pays no tax as he will be claiming a rebate of up to Rs. 25,000 under Section 87A of the Income Tax Act.
| Particulars | Amount (in INR) | ||
| Gross Total Income | 7,55,000 | 7,70,000 | 7,77,778 |
| Taxable Income after Standard Deduction | 7,05,000 | 7,20,000 | 7,27,778 |
| Tax Liability Before Amendment | 25,500 | 27,000 | 27,778 |
| Additional Income | 5,000 | 20,000 | 27,778 |
| Additional Tax | 25,500 | 27,000 | 27,778 |
| Marginal Relief | 20,500 | 7,000 | -0 |
| Tax Liability After Amendment | 5,000 | 20,000 | 27,778 |
Inferences:
-The tax payable on the increased income of Rs. 7.55 lakhs is now Rs. 25,500. There has been an increase in income by Rs 5000.
-The additional tax paid (i.e. Rs. 25,500) on an increasing portion of the income (i.e., Rs.5000) exceeds the increase in the income itself. As a result of the amendment, the individual is entitled to marginal relief of Rs. 20,500. (Rs. 25,500-5,000). Marginal relief is thus provided to benefit small taxpayers.
2. Withholding Tax Rate on Royalty and Fees for Technical Services doubled
The withholding tax rate under Section 115A of the Income Tax Act is increased from the current 10% to 20% w.e.f 1st April 2023 on royalties and fees for technical services paid by Indian taxpayers to non-resident businesses.
Taxpayers can still benefit from lower rates under Tax Treaties, by meeting certain documentation requirements such as obtaining a valid TRC and filing Form 10F online from April 1, 2023. In some cases, the withholding tax is borne by the Indian party instead of the non-resident entity through the grossing up of the withholding tax. The increase in the withholding tax rate on FTS and royalty from the current 10% to 20% will result in a significant increase in the technology-related costs for Indian enterprises. Please refer to our detailed blog here.
3. Credit Card Payment for foreign trips brought under LRS
Credit card payments for foreign travel will be brought under Liberalised Remittance Scheme (LRS) to ensure that such expenses do not escape TCS (Tax Collection at Source). These payments are also made subject to the levy of Tax Collected at Source (TCS) @ 20%.
With effect from 1st July 2023, TCS for foreign outward remittance under LRS other than for Education and medical purposes would be at the rate of 20%. Prior to this, the TCS of 5% was applicable on foreign outward remittances above Rs. 7 lahks.
4. Increased Securities Transaction Tax on the Sale of Options
The securities transaction tax (STT) on selling options has been increased to 0.0625% from 0.05%. The STT for futures has been raised to 0.0125% from 0.01%. The hikes would be effective from April 1, 2023.
Option Traders would have to pay Rs. 6,250 for every Rs. 1 crore worth of turnover against Rs. 5,000 that is being paid presently, which amounts to an increase of approximately 25%. Also, traders will now have to pay STT of Rs. 1,250 on Rs. 1 crore of turnover while selling futures.
5. Tax impact on unit holders of Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InvITs) softened
The debt repayment component of distribution income by REIT and InvIT has come under the tax bracket. However, the taxable amount will be calculated only after deducting the cost of acquisition of units which means only a small portion may attract capital gains tax at the time of sale of units.
6. Gain on Transfer of Specified Mutual Funds considered Short Term
The specified mutual fund are mutual funds where not more than 35% of the total proceeds are invested in equity shares of domestic companies, also known as debt mutual funds, acquired on or after 1.4.2023.
Any gain or income arising on transfer, redemption, or maturity of a unit of debt mutual funds, acquired on or after 1.4.2023, will be considered short-term capital gain, and taxable at the applicable slab rate, irrespective of the period of holding. Indexation benefit is also not available in case of short-term capital gain. This applies to any transfer made on or after 1st April 2023.
This amendment is likely made to bring the debt mutual funds at par with other interest-earning instruments such as bank fixed deposits/NPS/other insurance products.
7. Setting up a committee under the finance secretary to look into the issue of pensions
The bill proposes to set up a committee under the finance secretary to look into the issue of pensions and evolve an approach that addresses the needs of employees while maintaining fiscal prudence to protect the common citizens. The evolved approach will be designed for adoption by both central and state governments.
A committee is to be set up under the finance secretary on the pension system to address the needs of employees and also maintain fiscal prudence.
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