What is the Finance Bill?
It is an important part of the Union Budget that concerns the country’s finances, i.e., how tax will be collected and revenue will be earned. It is commonly confused with the Union budget, but a finance bill is just a part of it. The Union budget gives details about projected receivables and payables of the government, and the Finance Bill specifies all legal amendments required for changes in taxation. It is presented by the finance minister in Lok Sabha.
After the finance bill, an appropriation bill is also required to be passed, which authorises the government to use funds from the Consolidated Fund of India. An appropriation bill needs to be passed if the government wants to use money from these funds. So, the finance bill and the appropriation bill are the important parts of the union budget.
Finance Bill 2023:
This year, the finance bill was passed in the Lok Sabha without any discussion. This was amid the tensions surrounding Rahul Gandhi's conviction in the House of Parliament. The bill will be applicable as of April 1, 2023. There are 64 amendments announced by the finance minister.Also, she has announced the setting up of a committee to review the new pension system and take suitable measures to encourage states to opt for the New Pension Scheme (NPS). The key reason behind setting up this committee was the increasing burden on the government to pay pensions to government employees. It is a point of concern if more than 3% of the revenue receipts are spent on paying pensions, and many states are spending more than 16% of their revenue receipts on paying pensions.
Now, if your income increases to INR 7,10,000 p.a. and marginal relief is not applicable, you are not eligible for the rebate and have to pay tax of INR 27040 (25000 of the rebate plus 2040 of tax).
If marginal relief is applicable, you only have to pay tax on income earned above INR 7,00,000.
Taxable income = INR 7,10,000/-
Tax = INR 27, 040/-
(Minus) Marginal Relief = INR 17,040.
Tax payable = 10,000/-
Thus, you only have to pay 10, 000 in the form of tax, and this marginal relief is applicable up to an income of INR 7,29, 000 per annum. This relief has been given to encourage taxpayers to opt for the new tax regime.
(AUM stands for assets under management, which implies the cumulative market value of total securities held in a mutual fund scheme.)
Indexation refers to the calibration of taxation with inflation. Basically, it is a technique to get tax benefits by adjusting the inflation factor with the cost. The cost of inflation index is published by government every year. For example, you invested INR 5,00,000 in mutual funds in 2001–02 and sold them in 2021–22 for INR 50,00,000. Your actual profit is INR 45,00,000, but it will not be taxable. It will be calculated as follows:
Purchase price/cost as per year of purchase x cost as per year of selling
5,00,000/100 x 317 = 15,85,000
So, taxable value will be 45,00,000 - 15,85,000 = 29,15,000.
Due to this, the Sensex and the Nifty saw a drop of around 300 and 130 points on the day of the announcement of the finance bill, respectively.
Thus, it can be seen that some tax benefits and reliefs have been given to the taxpayers on the one hand, and some tax rates have been hiked on the other.
You can read more on the official website.
These contents are for information purpose only, and do not purport to be legal documents, viewers are advised to verify the content from the original Finance Bill.
Key Amendments:
There is some good and bad news for the taxpayers now that the finance bill has been presented in the Lok Sabha. Let us take a look at this.- There are enhanced tax benefits on the income from the business that has been set up in the GIFT city. There will be a 100% tax deduction on the income earned during the first five years and a 50% tax deduction on income during the next five years.
- Marginal relief has been given to the taxpayers who are earning more than INR 7 lakhs per annum (p.a.). Which means you will have to pay tax on the income earned above INR 7 lakh. However, this relief is applicable only under the new tax regime and for the assessment years 2024–25 onward. Let’s understand this through an example:
Now, if your income increases to INR 7,10,000 p.a. and marginal relief is not applicable, you are not eligible for the rebate and have to pay tax of INR 27040 (25000 of the rebate plus 2040 of tax).
If marginal relief is applicable, you only have to pay tax on income earned above INR 7,00,000.
Taxable income = INR 7,10,000/-
Tax = INR 27, 040/-
(Minus) Marginal Relief = INR 17,040.
Tax payable = 10,000/-
Thus, you only have to pay 10, 000 in the form of tax, and this marginal relief is applicable up to an income of INR 7,29, 000 per annum. This relief has been given to encourage taxpayers to opt for the new tax regime.
- Debt mutual funds with less than 35% of AUM will now be treated as short-term capital gains (STCG), irrespective of the time period in which they are invested. Till now, income earned from the mutual funds, which were invested for a period of more than or equal to 3 years, was treated as long-term capital gain (LTCG). And taxpayers had to pay 20% of their LTCG with indexation included. But after this amendment, indexation benefits are also going to disappear.
(AUM stands for assets under management, which implies the cumulative market value of total securities held in a mutual fund scheme.)
Indexation refers to the calibration of taxation with inflation. Basically, it is a technique to get tax benefits by adjusting the inflation factor with the cost. The cost of inflation index is published by government every year. For example, you invested INR 5,00,000 in mutual funds in 2001–02 and sold them in 2021–22 for INR 50,00,000. Your actual profit is INR 45,00,000, but it will not be taxable. It will be calculated as follows:
Purchase price/cost as per year of purchase x cost as per year of selling
5,00,000/100 x 317 = 15,85,000
So, taxable value will be 45,00,000 - 15,85,000 = 29,15,000.
- The Security Transaction Tax (STT) on futures and options (F&O) has been increased from 1700 to 2100 on a turnover of INR 1 crore. STT is a direct tax charged on the purchase and sale of securities listed on the exchange in India.
Due to this, the Sensex and the Nifty saw a drop of around 300 and 130 points on the day of the announcement of the finance bill, respectively.
- The rate of tax on royalties and fees paid by Indian companies to foreign companies has been hiked from 10% to 20%.
Thus, it can be seen that some tax benefits and reliefs have been given to the taxpayers on the one hand, and some tax rates have been hiked on the other.
You can read more on the official website.
These contents are for information purpose only, and do not purport to be legal documents, viewers are advised to verify the content from the original Finance Bill.
