The Government has notified the Finance Act following the assent of the President on March 31. This will give effect to financial proposals of the Central Government for FY24.
With this, provisions such as treating gains on all investments made on or after April 1 in specified debt MFs as short-term capital gains, higher rate of securities transaction tax on option and future, new TDS norms for online gaming companies and higher threshold and rebate under new Income Tax regime beside others have come into effect. Higher rate of TCS on remittance for various purposes except for tuition fees and medical expenses, and no exemption on life insurance with an annual premium of ₹5 lakh or more have also come into effect.
Finance Bill amendments
The Finance Bill was introduced on February 1. Two amendments out of 64 moved during the consideration and passage of the Bill surprised everyone including the stock market.
The first amendment is related to taking away long-term capital gains tax benefits for investments in debt mutual funds. Gains on all investments made on or after April 1, 2023, in specified debt MFs will only be treated as short-term capital gains and not be entitled to a concessional tax rate of 20 per cent with indexation benefits, if held for over three years. Hence, 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.
The new regime will apply to specified MFs where not more than 35 per cent of the corpus is invested in equity shares of domestic companies. This amendment is significant as the change could benefit bank deposits, which have been growing more slowly than the credit demand over the past 12 months, leading to higher funding costs for banks.
The second amendment is related to the hike in securities transaction tax (STT) by 25 per cent on futures and options trades put through bourses. Under the new rules, option sellers will have to pay ₹6,200 STT on turnover of ₹1 crore versus the earlier applicable levy of ₹5,000. This translates into a hike of around 25 per cent. Traders in the futures segment will now have to pay STT of ₹1,250 on ₹1 crore of turnover against the earlier levy of ₹1,000. The new rules will come into effect from the new fiscal year starting Saturday.
There were some other important amendments. For example, in Budget 2023, the government sought to tax any form of distribution made by a business trust (REITs/InVITs) which was christened as ‘repayment of debt’ and/or ‘amortisation of debt’ in the hands of investor, irrespective of whether or not the initial investment was fully recouped. However, softening its stance, the amendment specified that only the sum received in excess of the initial investment will be taxed as income from other sources. Also, the sum received will compulsorily reduce the cost base of the unit to compute capital gains tax.
Another amendment paved the way for the setting up of a GST appellate tribunal (GSTAT) with one principal bench and several state benches. This is expected to help businesses resolve disputes more efficiently.