GST

Finance Act 2023 updated: Income tax and GST amendments discussed

On Monday, Lok Sabha endorsed the changes to Finance Bill 2023 proposed by Rajya Sabha. The Lok Sabha has now passed the Finance Bill 2023 with a few additional amendments to the Income Tax, CGST, IGST, and compensation cess Acts, which were originally tabled at Lok Sabha on February 1st, 2023. Read further to understand what amendments were made to the original Finance Bill 2023.

Finance Bill 2023: Income Tax Amendments

Section Income Tax Act/ Introduced in Finance Bill 2023 Amendment to the Finance Bill 2023
Date of Applicability Sections 2 to 122

shall come into force on the 1st day of April, 2023

 Sections 2 to 122

shall come into force on the 1st day of April, 2023 and 

applicability of Sections 123 to 144B will be notified by the Central Government by way of a notification in the official gazette 
115AD: Tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer Under Section 115AD(1)(a), any income from securities of a specified fund which is not exempt from tax is subject to a concessional rate of tax. This tax is required to be paid as advance tax and shall be increased by the following surcharge rate and 4% cess.
Income Surcharge Rate
Rs 50 lakh to Rs 1 Crore 10%
Above Rs 1 Crore 15%


Specified fund is defined as: Category-III Alternative Investment Funds, and Investment divisions of offshore banking units [clause (c) of the Explanation to Section 10(4D)]

 The Finance Bill (Lok Sabha) has amended the law so that no surcharge or health and education cess will be levied on income-tax calculated on the income of a specified fund taxable under Section 115AD(1)(a). This amendment applies only to specified funds which are formed as AOP or trust.

This amendment is applicable under both old and new tax regimes.
Section 56(2): Income from Other Sources The Finance Bill 2023 has proposed a new clause (xii) to be added to Section 56(2) regarding the treatment of sums received by unit holders from a business trust. The clause outlines that such sums are considered as income of the unitholder, except for certain exclusions, such as if the sum is in the nature of interest or dividend from a special purpose vehicle, or rental income from a REIT, or if it is taxable in the hands of the business trust under Section 115UA. The bill also prescribes a computation mechanism in Section 56(2)(xii). The amended Finance Bill has substituted this with a new provision, which:

– applies to any specified sum 

– received during the previous year 

– by a unit holder from a business trust – with respect to a unit held by the unit holder

– The sum should not be in the nature of income referred to in clause (23FC) or (23FCA) of Section 10, nor should it be chargeable to tax under sub-section (2) of Section 115UA. 

A formula is provided for the computation of the specified sum, with inclusions and exclusions stated. 

Explanation 1 and Explanation 2 have also been added Section 48(ii), covering the reduction of the cost of acquisition of a unit of a business trust by any sum received by a unit holder from the business trust. In simple words, if any sum received by a unit holder from a business trust is neither chargeable to tax in the hands of unit holder nor in the hands of business trust then such sum shall be reduced from the cost of acquisition of such unit.

This will have retrospective effects and will affect any sum received by a unit holder before 31-03-2023.
194BA: TDS on Winnings from Online Games Under the proposed Finance Bill 2023, two new sections were introduced to regulate winnings from online gaming: – – Section 115BBJ: Tax on net winnings from online games @ 30% (w.e.f  01-04-2023)

– Section 194BA: TDS @30% on winnings from online games (w.e.f 01-07-2023),

 Originally, Section 194BA was set to take effect on 01-07-2023, but the Lok Sabha has amended the bill so that it will now be effective from 01-04-2023. This change also affects Section 194B, which will now have consequential amendments from 01-04-2023. However, the consequential amendments to Section 271C and Section 276B will still take effect from 01-07-2023.
Section 2(37A)(ii) – According to Section 194BA, the entity responsible for paying out winnings from online games must withhold taxes at the rates in force. The definition of “rate or rates in force” is provided under Section 2(37A). Section 2(37A)(ii) enlists all the TDS provisions, where the term refers to the income tax rates specified in the Finance Act of the relevant year. However, the Finance Bill for 2023 unintentionally failed to amend Section 2(37A)(ii) to include a reference to Section 194BA. The Finance Bill (Lok Sabha) has now rectified this oversight by including a reference to Section 194BA in Section 2(37A)(ii).
Section 10(4G) Income earned by a non-resident from its portfolio is exempt from tax under Section 10(4G) subject to the following conditions:
  • The income is received by a non-resident from the portfolio of securities or financial products or funds managed or administered by any portfolio manager on behalf of such non-resident;
  • The income is received in an account maintained with an Offshore Banking Unit in any IFSC, as referred to in Section 80LA(1A); and
  • The income accrues or arises outside India and is not deemed to accrue or arise in India.
 Starting from the Assessment Year 2024-25, the Finance Bill (Lok Sabha) has extended this exemption to any income received by a non-resident from a specified activity carried out by a specified person. The Central Government may notify the activity and the person who can carry out such activity. However, all the other conditions mentioned earlier shall continue to apply.
87A and Marginal Relief The Finance Bill 2023 inserted a proviso to Section 87A to allow a higher rebate If the total income of a resident individual is up to Rs. 7,00,000, the tax payable will be zero if the taxpayer opts for new tax regime. The Finance Bill was amended the said proviso to Section 87A to allow  marginal relief if the total income marginally exceeds Rs. 7,00,000
50AA: Capital gains on MLDs and debt funds Finance Bill, 2023 inserted a new provision- Section 50AA for calculation of capital gains resulting from the transfer, redemption, or maturity of Market Linked Debentures (MLDs). Section 50AA also provided the capital gains from MLDs shall be deemed to be short-term capital gain. Under the amendment to Finance Bill, the scope of this section has been expanded to cover specified mutual funds.

“specified mutual fund”: means a mutual fund where not more than 35% of its total proceeds is invested in the equity shares of domestic companies.
Section 115A: Tax on dividends, royalty and technical service fees in the case of foreign companies
  • For non-resident individuals or foreign companies, dividend income is subject to a special tax rate of 20% (plus surcharge and health & education cess) as per Section 115A(1)(a)(A). The same tax rate applies to dividends received from Mutual Fund units.
  • If a non-resident or foreign company earns royalty or technical service fees that are not related to a permanent establishment or fixed place in India, they will be taxed on a gross basis (without any deduction for expenditure) at a special tax rate of 10% under Section 115A(1)(b)(A)/(B)
 Two changes in tax rates under Section 115A have been introduced by the amended Finance Bill (Lok Sabha):
  • A new proviso has been added to Section 115(1)(a)(A), stating that dividends received from a unit in an IFSC (as per Section 80LA(1A)) will now be taxed at 10%. This concessional tax rate of 10% will apply to non-residents and foreign companies.
  • The special tax rate of 10% on royalty income and fees for technical services earned by non-residents or foreign companies (as mentioned in Section 115(1)(b)(A)/(B)) has been increased to 20%.
Section 206AB As per Section 206AB, TDS has to be  deducted at a higher rate for people who did not file their income tax returns in the last year. However, this rule does not apply if the tax is required to be deducted according to the specified provisions. As of 01-04-2023, Section 194BA will be added to the list through the Finance Bill (Lok Sabha). Therefore, regardless of whether the recipient has filed a return or not, tax will be deducted at a rate of 30%.
Section 10 Section 10 provides a list of all the income which are exempt from tax The Finance Bill 2023 (Lok Sabha) has introduced a new clause (46B) and (34B)
  1. 10(46B) exempts the income of the following credit guarantee trusts and funds from tax:
  • National Credit Guarantee Trustee Company Limited (NCGTC),
  • Credit guarantee funds established and fully funded by the Central Government and managed by NCGTC, and
  • Credit Guarantee Fund Trust for MSMEs (CGTMSE) created by CG and SIDBI.
  1. Section 10(34B) exempts dividend income earned by an IFSC unit primarily engaged in the aircraft leasing business. However, the exemption is subject to the condition that the company paying the dividend should also be located in an IFSC and engaged in the aircraft leasing business.
Section 11 Under Section 11(7), if a trust or institution is registered under Section 12AA/12AB, it cannot claim exemption under any provisions of Section 10 except for Section 10(23C), Section 10(46), and Section 10(1).

However, the Finance Bill 2023 introduced a new Clause (46A) in Section 10 to exempt income arising to a body, authority, board, trust or commission established under a Central or State Act with a specific purpose. Consequently, Section 11(7) was amended to refer to this new Clause (46A) of Section 10.

 The Finance Bill 2023 (Lok Sabha) added another Clause (23EC) to Section 10 and gave its reference in Section 11(7).

Section 10(23EC) exempts any income received by the notified Investor Protection Fund, established jointly or separately by commodity exchanges in India, through contributions made by the exchanges and their members. However, if any amount from the fund not charged to income tax in the previous year is shared with the commodity exchange, it will be considered income for the previous year and, thus, chargeable to tax.
Section 10 NA A new clause (4H) has been added to Section 10. This clause provides an exemption to income earned by a non-resident or a Unit of an IFSC mentioned in Section 80LA(1A), subject to certain conditions:
  • The non-resident or Unit of an IFSC must primarily be involved in the business of leasing an aircraft,
  • Income should be in the form of capital gains arising from the transfer of equity shares of a domestic company.
  • Domestic company must be a Unit of an IFSC and engaged primarily in the business of leasing an aircraft,
  • It must start its operations on or before March 31, 2026 and
  • The equity shares of the domestic company must be transferred within 10 years of its operations, with the exception being if the domestic company started its operations before April 1, 2024, in which case the 10-year time limit will be counted from that date.

For the purposes of this clause, “aircraft” refers to an aircraft, helicopter, an engine or part of an aircraft or a helicopter.
Section 194LC: Income by way of interest from Indian company Section 194LC requires Indian Companies or Business Trusts to deduct TDS from the interest paid on foreign currency borrowing, issuance of long-term infrastructure bonds, or rupee-denominated bonds. The tax deduction rate is usually 5%, but for interest payable on long-term or rupee-denominated bonds listed on a recognized stock exchange located in IFSC, the rate is reduced to 4%. Effective from 1st July 2023, the Finance Bill (Lok Sabha) has added a second proviso to Section 194LC(1), which states that a tax rate of 9% will be levied on the money borrowed from a foreign source by issuing a long-term bond or rupee-denominated bond on or after 1st April 2023, listed only on a recognized stock exchange located in an IFSC.
Section 206CC(1) and Section 206CCA(1) Higher TCS if buyer does not furnish PAN The maximum TCS rate shall not exceed 20%.

This proviso has been inserted with effect from 01-07-2023.
Section 206C The Finance Bill 2023 proposed to amend Section 206C(1G) with effect from 01-07-2023. The proposed amendments include:
  • 5% TCS rate for remittances made under LRS and a 20% TCS rate for sale of Overseas Tour Program Packages (TPP)
  • TCS is only required when the aggregate of remittance exceeds Rs. 7 lakhs and is for educational or medical purposes.
 The Finance Bill (Lok Sabha) has amended Section 206C(1G)(a) to eliminate the phrase “out of India,” expanding the provision’s scope to cover remittances made under LRS, even within India. As a result, if a remittance is made under LRS to the GIFT city, the new TCS rates will apply.
Section 80LA: Deduction in respect of certain incomes of Offshore Banking Units Section 80LA(1) grants a tax deduction to two types of entities:
  1. scheduled banks with offshore banking units in a Specific Economic Zone (SEZ), and
  2. banks established under foreign laws that have offshore banking units in an SEZ.

These entities are eligible to claim 100% of their income as a deduction under Section 80LA(1) for five consecutive assessment years. After the initial five years, they can claim a deduction of 50% of their income for the next five consecutive years.

 Recently, the Finance Bill (Lok Sabha) made an amendment to Section 80LA(1) by adding a new provision after clause (b). This amendment allows eligible assessees to claim a deduction of 100% for the subsequent five years, instead of the earlier provision of a 50% deduction. However, the maximum period of deduction remains the same, which is 10 years in total. For example, if an eligible assessee has claimed a deduction for eight assessment years until 2022-23, they can claim a 100% deduction only for the remaining two assessment years starting from 2023-24.
115VP Tonnage taxation scheme was introduced under the Act to make the Indian shipping industry more competitive. The proposed Finance Bill (Lok Sabha) includes a provision that would allow a unit of an IFSC (International Financial Services Centre) to apply for the tonnage tax scheme within three months from the date its deduction under Section 80LA ceases.
Section 47(xx) and Section 49(2AI) Section 47 lists a few cases which will not be considered as transfer for the purpose of capital gains. A new clause (xx) has been added to Section 47 of the Finance Bill (Lok Sabha) which states that if a Public sector company transfers its interest in a Joint Venture (JV) in exchange for shares in a foreign company, it will not be considered a transfer. Additionally, a new sub-section (2AI) has been included in Section 49 to provide that the cost of the interest in the joint venture will be deemed to be the cost of acquisition of shares acquired by the Public Sector Company.
Definition of Original Fund To promote the relocation of offshore funds (“original fund”) to the IFSC in India, the Finance Act, 2021 has inserted Sections 47(viiac), 47(viiad) and Section 10(23FF) to make that relocation a tax-neutral transaction The Finance Bill (Lok Sabha) has expanded the definition of “original fund” with effect from Assessment Year 2023-24 to include the following funds:
  • An investment vehicle in which Abu Dhabi Investment Authority is the direct or indirect sole shareholder or unit holder or beneficiary or interest holder and such investment vehicle is wholly owned and controlled, directly or indirectly, by the Abu Dhabi Investment Authority or the Government of Abu Dhabi; or
  • Other funds notified by the Central Government

 

Finance Bill 2023: GST Amendments

Section Existing Central Goods and Services Tax Act, 2017 Amendment made to the Finance Bill 2023
23 – Persons not

liable for

registration.

 The Government on the basis of GST Council recommendations could notify exemptions from obtaining GST registration for a category of persons. Now, under the amended Section 23, the government may specify categories of persons exempted from GST registration. However, Section 22(1) and Section 24 cannot be overridden in prescribing the same.
30 – Revocation of cancellation of registration. There was a time limit for taxpayers to submit a revocation application within 30 days from the date of service of cancellation order. There was also a proviso allowing extension of such period with the permission of Additional Commissioner/Joint Commissioner/Commissioner, as applicable. A new Section 131A has been inserted in the CGST Act, 2017 removing the time period of 30 days as well as the proviso for extension. Further, the amendment gives reference to the CGST Rules for the time period and conditions for revocation of cancellation of GST registration.
62- Assessment of non-filers of returns. A registered person must furnish a valid return within 30 days of the service of the assessment order. No provision was present to extend this time limit. A new Section 137A has been inserted extending the time period to 60 days for a taxpayer to file a valid return after being served with an assessment order. Further, there will be an additional late fee of Rs.100 per day for each day of delay beyond 60 days. Once the return has been furnished, the assessment order shall be deemed to be withdrawn.
109- Constitution of Appellate Tribunal and Benches thereof Entire provision is revised. Primarily, the authorities were earlier called the National and Regional benches. Section 109 has been revised to constitute the following key changes-
  • The jurisdiction, powers and authority conferred on the appellate tribunal shall be exercised by the Principal Bench and State benches (formerly known as the National and Regional benches)
  • Proviso to new Subsection (5) puts a condition that if any one of the issues involve place of supply, then only the Principal Bench can hear such a case.
  • Subsection (7) inserted stating that the senior-most judicial member in State benches will be the Vice-president (and exercise such power of the President) but for all other purposes be a member
  • Subsection (9) inserted to allow the President to interfere and refer the cases where the members of the bench differ in any point/s to be decided based on majority opinion, as follows-
    • Appeal by State Bench members – To another member of the same State Bench or other states
    • Appeal by Principal Bench members – To another member of the Principal Bench or member of any State Bench
  • Proviso to sub Section (10) inserted to state that technical member of a State Bench may be transferred to the same State in which they were originally appointed after consulting the State Government.
110- President and Members of Appellate Tribunal, their qualification, appointment, conditions of service, etc. Entire provision stands revised.
  • Combined period of 10 years as district judge to be eligible for judicial member
  • Technical member (Centre) must have served in Indian Revenue (Customs and Indirect Taxes) service or of the All India Service with at least 3 years of experience in the administration of an existing law or GST in the Central Government, and has completed at least 25 years of service in Group A;
  • Technical member (State) should have been an officer above the rank specified and should have completed 25 years of service in Group A or equivalent, with at least 3  years of experience in the administration of the existing law or GST or the field of finance/taxation in the state government
  • Appointed/re-appointed by the government based on recommendations of Search-cum-Selection committee
  • Constitution of committee, powers, removal procedures have been specified
114- Financial and administrative powers of President There was proviso giving the President of the Bench the authority to delegate financial and administrative powers to the members. Proviso to Section 114 stands removed
117- Appeal to High Court Any person who has been aggrieved by an order passed by the State Bench or Area Benches of the Appellate Tribunal could file an appeal to the High Court Removed reference to area benches
118- Appeal to Supreme Court

& 

119- Sums due to be paid notwithstanding appeal, etc.

 An appeal shall lie to the Supreme Court from any order passed by the National Bench/Regional Benches References to National Bench/Regional Benches are now substituted with Principal Bench/State Benches respectively

 

Section Existing Integrated Goods and Services Tax Act, 2017 Amendment to the Finance Bill 2023
13- Place of supply of services where location of supplier or location of recipient is outside India The place of supply of the services of transportation of goods, other than by way of mail or courier, shall be the place of destination of such goods. Section 13(9) of IGST Act is deleted. The provision of place of supply for services of transportation of goods is the location of the recipient of services where location of supplier or recipient of services is outside India.

 

Schedule/ Serial No. Existing Goods and Services Tax (Compensation to States) Act, 2017 Amendment to the Finance Bill 2023
1 – Pan Masala 135% Ad valorem 51% of retail sale price per unit
2- Tobacco and manufactured tobacco substitutes, including

tobacco products.

 Rs.4,170 per thousand sticks or 290% ad valorem or a combination thereof, but not exceeding Rs.4,170 per thousand sticks + 290% ad valorem Rs.4,170 per thousand sticks or 290% ad valorem or a combination thereof, but not exceeding Rs.4,170 per thousand sticks + 290% ad valorem or 100% of retail sale price per unit

 

For any clarifications/feedback on the topic, please contact the writer at ektha.surana@clear.in

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