Finance Bill 2023: Here is what we know

The Lok Sabha on Friday voted to pass the Finance Bill, which implements tax plans for the fiscal year beginning April 1, without debate, and was then adjourned till March 27, 2023. The Bill includes sixty-four recommended modifications. 

Lok Sabha Speaker Om Birla has earlier ordered a guillotine vote on the Union Budget 2023 and the accompanying Finance Bill, which was passed without debate in just 12 minutes. The Bill was passed despite calls from the Opposition for a JPC investigation into the charges made against the Adani Group. A guillotine is a legislative tool for swiftly passing legislation with minimal debate. This tactic is typically used when the government is determined to enact a Bill, but the opposition is seen as a roadblock. On Friday, the opposition continued to demand a Joint Parliamentary Committee probe into allegations of wrongdoing against Adani. 

Debt funds, gold funds, foreign equity funds, and Funds of Funds (FoF) are all impacted by the latest modification to the Finance Bill (FoFs). All investments, regardless of how long they have been held, will be subject to Short-Term Capital Gains (STCG) taxation as of April 1, 2023, when the indexation benefit is eliminated. 

The long-term tax benefits that attracted investors to debt mutual funds would be lost because of the change to a short-term capital gains tax. When holding debt funds for more than three years, investors must pay income tax on capital gains based on their tax bracket. After three years, investors can withdraw either 20 per cent with indexing or 10 per cent without. 

Transfer gains from certain mutual funds after the amendment will be considered short-term and subject to tax at slab rates. The original draught also advocated taxing market-linked debentures. 

The definition of a "specified mutual fund" includes portfolios where the proceeds do not invest in more than 35 per cent domestic stock. Debt mutual funds and gold ETFs may fall into this category if they invest less than 35 per cent of their net assets in U.S. corporations. 

This change will make the tax treatment of these mutual funds consistent with the treatment of bank deposits, which are taxed at slab rates. The goal, according to Finance Secretary T V Somanathan, was to make the instruments more comparable. 

Royalty and technical service fees given to non-residents now incur a 20 per cent withholding tax, up from 10 per cent. When Indian companies are grossing up withholding taxes and no international tax treaty benefits are available, "this may increase the cost of importing technology," said Gouri Puri, partner at Shardul Amarchand Mangaldas & Co. 

The withholding tax on royalties and technical service fees paid to non-residents has increased to 20% from 10%. "this may increase the cost of importing technology," said Gouri Puri, partner at Shardul Amarchand Mangaldas & Co., when asked about the potential impact of Indian corporations grossing up withholding taxes in the absence of international tax treaty benefits. 

There has not been much comfort for start-ups from the proposed change to the angel tax regime, which was unveiled in the Union Budget 2023, which states that international investors will be subject to angel tax. This decision is expected to limit foreign investment in start-ups. 

The proceeds from the sale of shares obtained by Indian unlisted companies will now be taxed as "revenue from other sources." 

The term "angel tax" refers to the tax that must be paid on funds raised by unlisted companies through the issuing of shares in off-market transactions if they exceed the company's fair market value.