Recently, the Union Government of India has made amendments to the Finance Bill 2023 with the aim of simplifying the tax system. This essay will provide an overview of the important highlights of the bill and its effects, as well as discussing the difference between Money Bills and Financial Bills.

Important Highlights of the Bill
  • The Union Government has scrapped long-term capital gains treatment for income from debt mutual funds and other schemes investing up to 35% in equity shares of domestic companies.
  • Previously, these investments were considered long-term and taxed at 20% with indexation benefits.
  • This change will increase the tax burden on high net-worth investors and family offices that benefited from the existing tax regime.
  • Offshore banking units operating in GIFT City have been provided with enhanced tax benefits, with a 100% deduction on income for ten years.
  • The tax on royalty or technical fees earned by foreign non-resident companies has been increased from 10% to 20%, which may increase the cost of imports without a bilateral treaty.
  • The tax on non-par savings insurance products remains unchanged, with a cap of ?5 lakh.
  • There has been no change in the taxation of REITs/InviTs, with income from REITs taxed as ‘income from other sources’ instead of capital gains.
  • The securities transaction tax (STT) on the sale of options has been increased to ?2,100 on a turnover of ?1 crore, indicating a 23.5% increase from the earlier levy of ?1,700.
  • The STT on the sale of futures contracts has been raised to ?12,500 on ?1 crore of turnover against the previous levy of ?10,000, indicating a 25% hike.
Effects of the Amendment

This amendment will increase the tax burden on high net-worth investors and family offices who gained from the tax arbitrage under the existing tax regime. As a result, investors may opt to put their money into bank fixed deposits, equity mutual funds, and hybrid funds that invest over 35% of their portfolios in equity and Sovereign Gold Bonds.

Difference between Money Bills and Financial Bills

Money Bills:

  • Bills that only contain provisions related to taxation, borrowing of money by the government, expenditure from or receipt to the Consolidated Fund of India.
  • Bills that only contain provisions that are incidental to these matters would also be regarded as Money Bills.
  • An example of a Money Bill is the Finance Bill, which only contains provisions related to tax proposals.

Financial Bills:

  • Bills that contain some provisions related to taxation and expenditure but also contain provisions related to any other matter.
  • If a Bill involves expenditure by the government and addresses other issues, it will be a Financial Bill.
  • All Money Bills are Financial Bills, but not all Financial Bills are Money Bills.
Why In News

The Union Government has taken a significant step towards simplifying the tax system by amending the Finance Bill 2023. This amendment aims to reduce the burden of compliance for taxpayers and enhance transparency in the tax administration.

MCQs about India’s Finance Bill 2023 Amendment

  1. What is the Union Government’s aim with the amendments to the Finance Bill 2023?
    A. Increase tax burden on high net-worth investors
    B. Reduce tax burden on high net-worth investors
    C. Simplify the tax system
    D. Increase tax on foreign non-resident companies
    Correct Answer: C. Simplify the tax system
    Explanation: The Union Government’s aim with the amendments to the Finance Bill 2023 is to simplify the tax system. The essay’s first sentence mentions this.
  2. Which type of investment was previously considered long-term and taxed at 20% with indexation benefits?
    A. Equity shares of domestic companies
    B. Debt mutual funds
    C. Family offices
    D. Bank fixed deposits
    Correct Answer: B. Debt mutual funds
    Explanation: According to the essay, long-term capital gains treatment for income from debt mutual funds and other schemes investing up to 35% in equity shares of domestic companies was previously considered long-term and taxed at 20% with indexation benefits.
  3. What is the impact of the increased tax on royalty or technical fees earned by foreign non-resident companies?
    A. May increase the cost of imports without a bilateral treaty
    B. Will decrease the cost of imports
    C. Will not have any impact on the cost of imports
    D. May decrease the cost of exports
    Correct Answer: A. May increase the cost of imports without a bilateral treaty
    Explanation: The essay states that the tax on royalty or technical fees earned by foreign non-resident companies has been increased from 10% to 20%, which may increase the cost of imports without a bilateral treaty.
  4. What is the difference between Money Bills and Financial Bills?
    A. Money Bills contain provisions related to taxation and expenditure from or receipt to the Consolidated Fund of India, while Financial Bills contain some provisions related to taxation and expenditure but also contain provisions related to any other matter.
    B. Money Bills contain provisions related to any matter, while Financial Bills only contain provisions related to taxation.
    C. Money Bills are only passed in odd-numbered years, while Financial Bills are passed in even-numbered years.
    D. There is no difference between Money Bills and Financial Bills.
    Correct Answer: A. Money Bills contain provisions related to taxation and expenditure from or receipt to the Consolidated Fund of India, while Financial Bills contain some provisions related to taxation and expenditure but also contain provisions related to any other matter.
    Explanation: The essay provides an explanation of the difference between Money Bills and Financial Bills.

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