Key Highlights of the Amendment to Finance Bill 2023 – Direct Tax

Following are the key amendments made by the Lok Sabha to the Finance Bill, 2023.

A. Amendments regarding tax withholding provisions

  • TCS rate on overseas tour packages and in case of foreign remittance made for the purpose other than education and medical treatment was proposed to be increased vide Finance Bill 2023, from 5% to 20%. The scope of TCS provisions has been widened to include remittance made under Liberalized Remittance Scheme (LRS) even within India. Earlier, only those remittances under LRS were covered which were made outside India. Also, an upper cap on TCS rate is provided under Section 206CC and Section 206CCA of the Income Tax Act, 1961 (“the Act”) to limit the TCS rate at 20% in case of non-furnishing of PAN or non-filer of return.
  • The rate of withholding tax on long term bond or rupee denominated bond issued on or after 01.04.2020 but before 01.07.2023 listed on Stock Exchange in IFSC was 4%. Now, vide the amendment made to Finance Bill, 2023, for long term bond or rupee denominated bond issued on or after 01.07.2023, the rate of withholding tax has been increased to 9%. Such increase in withholding tax rate will now warrant the examination that whether the DTAA provisions are more beneficial considering the fact that Foreign Tax Credit of cess and surcharge paid under the Act will not be available to the non-resident taxpayer.
  • The applicability of Section 194BA of the Act, i.e., TDS on winnings from online games, has been preponed from 01.07.2023 to 01.04.2023. The chargeability section i.e., 115BBJ of the Act was already set to come in effect from 01.04.2023.
  • Finance Act, Schedule I, Part II – Withholding Tax Rates.
ParticularsErstwhile rates (%)Amended rates (%)
Withholding rate on Royalty1020
Withholding rate on Fees for Technical Service1020
Withholding rate on Dividend Dividend income from IFSC units Other Dividend Income  20 20  10 20

B. Other Amendments

  • Mutual Funds having proceeds less than or equal to 35% invested in equity shares of domestic companies are now added to the list of capital assets (along with Market Linked Debentures) that will be taxed as short-term capital gains irrespective of the period of holding.
  • Offshore Banking Units in SEZ are now brought at par with the IFSC Units availing deduction under Section 80LA of the Act. In other words, such offshore banking units can claim 100% deduction of the income in the later block of 5 years. Earlier, the provisions of Section 80LA provided a deduction of 100% in the first 5 years and then 50% for the next 5 years.
  • Section 87A was amended earlier vide Finance Bill 2023, to give the benefit of rebate to the person opting for new regime, whose total taxable income was less than or equal to seven lakh rupees. However, if the income of such person marginally exceeds seven lakh rupees, such person has to pay tax on the entire income therefore increase in tax may be more than the increase in total income. To curb this unfavorable situation, parliament amends the existing provision further to bring the marginal relief concept under Section 87A for the person(s) opting for the new regime.

Lakshay Prakash Jonwal, Direct Tax Associate, SW India

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