International Tax Panorama

Lok Sabha on Friday passed the Finance Bill 2023 with 64 amendments. After this several changes will come into effect from 1 April. Below are the key changes made, that can impact both individuals and businesses. 

1. Tax Hike on Royalty and fees from technical services:

The government has hiked the tax on royalty and fees from technical services earned by non-resident companies from 10% to 20%. 

This increase in rate will lead to a higher rate of tax of withholding tax obligations on payments to be made to non-residents unless there is a tax treat benefit which reduces such rate

2. Gains From Debt Mutual Funds To Be Taxed As Short Term Capital Gains

The intention is to ensure that funds whose underlying income emanates from interest income do not receive the indexation benefit and lower tax rate usually attributed to long-term capital gains.

The proposal will impact not just debt mutual funds but also funds whose majority investments fall under the non-equity category, such as gold funds.

3. Securities Transaction Tax (STT) on Futures and Options Contract

The STT on the sale of options was increased to Rs 2100 on a turnover of Rs 1 crore from a previously applicable rate of Rs 1700. The government hiked STT on futures contract from 0.01 percent to 0.0125 percent and from 0.017 percent to 0.021 percent in options. 

4. Angel Tax: 

Foreign investors to be bought within the ambit of angel tax. The funds received by Indian unlisted companies on the sale of shares will now be taxed under “income from other sources” 

5. Marginal Relief for Individual Taxpayers: 

The amendment to the Finance Bill brings relief for individual taxpayers whose income is marginally higher than Rs 7 lakh. An individual whose total taxable income is above Rs 7 lakh and whose tax liability is more than the amount in excess will be allowed to seek a deduction on the income tax. The deduction would be the difference between the excess amount

6. Tax on Online Gaming: 

The government has advanced the effective date of taxation changes made to online gaming.

In Budget 2023, the government proposed to introduce a new provision—Section 194BA—in the Income Tax Act to impose TDS obligations on tax winnings from online gaming, regardless of the quantum of winnings.

7. Relief For REIT, InvIT Investors

 The government has amended the Finance Bill, 2023, to soften the tax impact on unit holders of REITs and InvITs.

To recap, the bill had proposed that distributions by REITs and InvITs classified as ‘repayment of debt’ will be taxed in the hands of unitholders effective April 1, 2023.

Now, the government has proposed a change to the Finance Bill, 2023, by providing a formula for calculating the tax implications when distributions are made as ‘repayment of debt’. So far, the entire amount classified as ‘repayment of debt’ has been proposed to be taxed. Now, the proposed change is that only a “specified sum” will be paid, and the amendment to the Finance Bill has provided a formula to determine the amount.

8. TDS to be applicable to all Liberalised Remittance Scheme 

it is proposed that tax collection of source shall now apply to all Liberalised Remittance Scheme even if within India. 

9. New committee for National Pension System 

Sitharaman also announced that a new committee will be set up under Finance Secretary to look into the National Pension System (NPS) for government employees.

10. Credit card payments for foreign tours within Liberalised Remittance Scheme

Speaking in Lok Sabha on Finance Bill 2023, Sitharaman said that the reserve Bank of India (RBI) will be looking into the matter and has been requested to ‘bring credit card payments for foreign tours within the ambit of LRS and tax collection at the source thereon’.

If credit cards for tourist transactions are brought under the purview of LRS and TCS, credit card transactions will result in tax deductions at the source. Further clarity on the matter is expected after the RBI clarifies its specifics in the days ahead.