Recently, the Lok sabha has passed the Finance bill 2023 with 64 amendments.
What are the key highlights of the Finance Bill 2023?
Capital gains- Capital gains from debt funds, international funds, fund of funds and gold funds, irrespective of their holding period, will be taxed at an individual’s relevant tax slab.
Mutual funds– Mutual funds having less than 35% Assets Under Management (AUM) in domestic equity to lose indexation benefit, to be taxed as short-term capital gains.
Securities transaction tax (STT) -There has been hike in STT taxes.
Real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) - Only the sum received in excess of the initial investment will be taxed as income from other sources.
GST appellate tribunal - The amendments intends to set up of a GST appellate tribunal (GSTAT) with one principal bench and several State benches.
Foreign tours - RBI is being requested to bring payments for foreign tours through credit cards within the ambit of Liberalized Remittance Scheme (LRS).
GIFT city - Offshore banking units operating in GIFT city to get 100% deduction on income for 10 years.
Foreign (non-resident) companies -Tax on royalty or technical fee earned by non-resident companies hiked from 10% to 20%.
How will the amendment in the finance bill 2023 affect debt mutual funds?
Differentiation in debt fund –Following the latest change, the differentiation in debt fund taxation, for a holding period of under 3 years, and of 3 years or longer years, will no longer hold.
Capital gain –Any capital gain on redemption of debt funds bought on or after April 1, 2023, will be taxed at the income tax slab rate.
Taxation perspective –With the tax arbitrage between debt funds (capital gains), bonds and FDs (interest income), the 3 are now at par from a taxation perspective.
In addition to the taxation of interest, listed bonds also attract capital gains tax.
Short-term capital gains –The holding period of up to 1 year, from listed bonds are taxed at your income tax slab rate.
Long-term capital gains –They are taxed at 10% without indexation.
It is the interest rather than the capital gain that is a more important source of income.
Accrual-based taxation –It helps avoid the possibility of inquiry from the income tax department for a mismatch of data reported to the income tax department and income offered to tax.
Debt fund investments –It can help long-term investors postpone their liability.
Indexation benefit –It was used to bring down the tax liability substantially for such investors.
Better than FDs –From the perspective of ease of any time of withdrawal, debt mutual funds continue to score over FDs, because premature withdrawals from FDs attract a penal rate of interest.
Exit loads –Some debt funds have an exit load, but for very short periods.
Quick Facts
Capital gains –A capital gain is the increase in a capital asset's value and is realized when the asset is sold.
Mutual funds –A mutual fund is a pool of money managed by a professional Fund Manager.
Assets Under Management (AUM) –Assets under management (AUM) refers to the total market value of the investments or assets managed by a mutual fund, hedge fund, wealth management firm, portfolio manager, or other financial services firm.
Securities transaction tax (STT) –Securities Transaction Tax (STT) is a direct tax charged on the purchase and sale of securities listed on the exchanges in India.
Real estate investment trusts (REITs) –A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate.
Infrastructure investment trusts (InvITs) –I is Collective Investment Scheme similar to a mutual fund, which enables direct investment of money from individual and institutional investors in infrastructure projects to earn a small portion of the income as return.
GST appellate tribunal (GSTAT) –The GST Appellate Tribunal (GSTAT) is the second appeal forum under GST and the first common forum of dispute resolution between Centre and States.
Liberalized Remittance Scheme (LRS) –It is a part of the Foreign Exchange Management Act (FEMA) 1999 which lays down the guidelines for outward remittance from India.
