Key Amendments under tax proposed in the Finance Bill, 2023-24
The Finance Bill, 2023 has been introduced in the Lok Sabha on 1st February, 2023 and has proposed various amendments under Direct and Indirect Taxes.
A. Key changes proposed vide Finance Bill, 2023 under the Income Tax Act, 1961 –
Micro, Small and Medium Enterprises:
• Deduction on payments to MSMEs available on payment basis
Section 43B provides for certain deductions to be allowed only on actual payment. A new clause (h) is proposed to be inserted to Section 43B to provide that any sum payable by the assessee to a micro or small enterprise beyond the time limit of 45 days where there is an agreement and 15 days in case no agreement is there, as specified in Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 shall be allowed as deduction only on actual payment. The proposed amendment will allow the payment as deduction only when actual payment is made. It can be allowed on accrual basis only if the payment is within the time mandated under the said Act. This amendment will be effective from 1st day of April, 2024.
It is to be noted here that while in case of other clauses under Section 43B, deduction is allowed even if the payment is made within due date of filing of return of income, however, in case of payment to MSMEs, payment made after the year end but before due date of filing of return shall be allowed only if the payment is made within the 45 days or 15 days (as the case may be) timeline.
• Presumptive Taxation Scheme
Eligibility criteria for availing benefit of the presumptive schemes u/s 44AD and 44ADA has been enhanced upto a turnover / gross receipts of INR 3 crore for business and INR 75 lakhs for professionals provided that 95% of receipts are received other than through cash or non-account payee cheque or draft. This amendment will be effective from 1st day of April, 2024.
Start-ups:
• Section 79(1) relating to “Carry forward and setting off of losses for certain companies”, is proposed to be amended to allow carried forward loss of Eligible Start-ups for set off, if such loss has been incurred during the period of ten years beginning from the year in which such company was incorporated. Currently, Eligible Start-ups are allowed to carry forward and set off their losses for a period of upto seven years. This amendment will be effective from 1st day of April, 2023.
• Benefit of deduction of 100% of profit from Eligible Business u/s 80-IAC to be extended to all Eligible Start-ups incorporated on or before 31st day of March, 2024 instead of 31st day of March, 2023. This amendment will be effective from 1st day of April, 2023.
Tax Deducted at source / Tax collected at source:
• Deduction of tax at source (TDS) on benefit or perquisites in cash
Section 194R on deduction of tax at rate of 10% on benefit or perquisites provided to a resident arising from business or profession to be amended to provide for deduction of tax on benefits or perquisites received in cash or kind or partly in cash or partly in kind. Section 28 has also been proposed to be amended on similar lines to cover benefit or perquisites arising from business or the exercise of a profession in cash under the head “Profits and Gains of Business or Profession”.
• TDS on interest on listed debentures
Payment of interest on listed debentures to a resident proposed to be subjected to deduction of tax at source. This amendment will be effective from 1st day of April, 2024.
• TDS on certain income to a non-resident (not being a company) or to a Foreign Company
Section 196A proposed to be amended to provide that on payment of certain income to a non-resident (not being a company) or to a Foreign Company, tax at source shall be deducted at a rate lower of 20% or as prescribed in tax treaty. The said income is required to be in respect of units of a Mutual Fund registered under the SEBI or set up by a public sector bank or a public financial institution or authorised by the Reserve Bank of India or from the specified company as referred to in clause (h) of section 2 of the Unit Trust of India Act. This amendment will be effective from 1st day of April, 2023.
• TDS on net winnings of online games
Section 194BA proposed be inserted which requires the deduction of tax on income received from the net winnings of online games in an individual’s user account at the end of the fiscal year or from any withdrawals made during the year. Further, a new Section 115BBJ is proposed to be inserted, which mandates that the income received from net winnings of online games be taxed at a rate of 30%. This amendment will be effective from 1st day of July, 2023.
• TDS on accumulated balance of Employees’ Provident Fund
Section 192A proposed to be amended to provide that in case an employee fails to furnish his PAN for getting the accumulated balance in Provident Fund, tax shall be deducted at the rate of 20%. Currently, in case the employees do not furnish PAN tax is being deducted at the maximum marginal rate of 30%. This amendment will be effective from 1st day of April, 2023.
• TDS credit for income already disclosed in the return of income of past year
Section 155 proposed to be amended to provide that any income which has been included in the return of income furnished by an assessee in past year and tax on such income has been deducted at source in a subsequent financial year, the Assessing Officer shall, on an application made by the assessee in the prescribed form within a period of two years from the end of the financial year in which such tax was deducted at source, amend the order of assessment or any intimation allowing credit of such tax deducted at source in the relevant assessment year. However, the credit of such tax deducted at source shall not be allowed in any other assessment year. Currently, TDS Credit is allowed only in the year when the corresponding income was offered to tax. This amendment will be effective from 1st day of October, 2023.
• Rate of TDS / TCS for payee who have not filed their return of income
Section 206AB and 206CCA relating to applicability of higher TDS/TCS rates for non-filers of income-tax returns is proposed to be amended so as to exclude those not required to file returns of income for the assessment year relevant to the said previous year and are notified by the Central Government from the definition of “specified persons”. This amendment will be effective from 1st day of April, 2023.
Transfer Pricing report:
• Section 92D proposed to be amended to reduce the time limit for furnishing of Transfer Pricing (TP) documentation by the assessee. The TP Officer may require the assessee to furnish the TP documentation within 10 days from the date of initial notice against the 30 days period currently available. This amendment will be effective from 1st day of April, 2023.
Furnishing incorrect particulars in Statement of Financial Transaction:
• Sub-section (2) in Section 285BA shall be inserted to impose a penalty of INR 5,000 on reporting financial institutions for inaccuracies in statements due to false or inaccurate information from account holders, in addition to any other penalties levied by the income tax authority. This amendment will be effective from 1st day of April, 2023.
Charitable Trusts:
• Filing of Form 9A and Form 10 by trusts or institutions to claim accumulation of income required to be made at least two months prior to the due date of filing of return of income.
• Trusts or institutions cannot claim the benefit of exemption where return of income is not furnished within time.
• Repayment of loan or investment/ depositing back in to corpus shall be considered as application for charitable or religious purposes only within 5 years of application from the corpus or loan.
• Donations made by a trust or institution to another trust or institution shall be treated as application only to the extent of 85% of such donations.
Special Economic Zones:
• Section 10AA provides specified tax exemptions to units established in a SEZ on fulfilment of prescribed conditions. The said section is proposed to be amended to provide that the deduction shall not be allowed to an assessee who does not furnish a return of income within due date u/s 139(1).
Further, a sub-section is proposed to be inserted to provide that deduction under Section 10AA shall be available to units engaged in exports only if exports proceeds are repatriated to India within a period of six months from the end of the previous year or, within such further period as the specified by RBI.
Other Key Amendments:
• ‘Cost of acquisition’ or ‘Cost of Improvement’ of home grown intangible assets
Section 55 is proposed to be amended to provide that ‘Cost of acquisition’ or ‘Cost of Improvement’ of a capital asset being any intangible asset or any sort of right for which no consideration has been paid for acquisition shall be ‘Nil’. Currently, the term ‘cost of acquisition’ and ‘cost of improvement’ of such assets is not clearly defined as ‘nil’. This amendment will be effective from 1st day of April, 2024.
• Transfer of Market linked debentures
Section 50 AA proposed to be inserted to provide that capital gains arising from the transfer or redemption or maturity of “Market linked debentures” shall be deemed to be short-term capital gains taxable at the applicable rates wherein full value of the consideration received or accruing as a result of the transfer or redemption or maturity shall be considered as reduced by the cost of acquisition of the debenture and the expenditure incurred wholly or exclusively in connection with transfer or redemption of such debenture. Currently, these securities are treated as listed securities and are being taxed as long term capital gain at the rate of 10% without indexation. This amendment will be effective from 1st day of April, 2024.
• Issues of Shares at premium over fair market value to non-residents
Section 56(2)(viib) provides that if a company (other than a company in which the public are substantially interested) receives consideration from a resident for issuing shares that exceeds the face value of the shares, and the aggregate consideration exceeds the fair market value of the shares, such excess over the fair market value will be charged to income tax under the head “Income from other sources”.
The said section is proposed to be amended to bring the non-resident investors within its ambit to eliminate the possibility of tax avoidance. Accordingly, the provision shall be made applicable for receipt of consideration for issue of shares from any person irrespective of residency status. This amendment will be effective from 1st day of April, 2024.
• Valuation of inventory by Cost Accountants
Section 142 relating to Inquiry before Assessment is proposed be amended to empower Assessing Officers to direct the assessee to get the inventory valued by a cost accountant to prevent deferral of taxes by undervaluation of inventory. Assessee shall be required to furnish the report of inventory valuation in the prescribed form duly signed and verified by such cost accountant.
• Introduction of Joint Commissioner (Appeals)
In order to ensure quick disposal of appeals pending with Commissioner (Appeals), it is proposed to introduce an authority called Joint Commissioner (Appeals) which shall have all powers, responsibilities and accountability similar to that of Commissioner (Appeals) with respect to the procedure for disposal of appeals.
B. Key changes proposed vide Finance Bill, 2023 under the Indirect Taxes –
1. Central Goods and Service Tax Act, 2017
E-commerce Operators:
• Registered persons engaged in supplying goods through E- commerce operators proposed to be allowed to opt to pay tax under the Composition Levy.
• Return in Form GSTR-8 for a particular month can be filed upto a maximum period of 3 years from the due date of filing of such return.
• Penalty of INR 10,000 or the amount of tax involved, whichever is higher, proposed to be levied on E-commerce Operators, in case any unregistered persons (who was liable to be registered and not otherwise exempted) is allowed to make supply of goods or services through it or a composition dealers is allowed to make inter-state supply of goods or services through it.
Availability of Input Tax Credit (ITC):
• Explanation for Section 17(3) proposed to be amended to limit the availability of ITC for certain transaction like sale of warehoused goods prior to clearance for domestic consumption, by including them in the value of exempt supplies. Accordingly, ITC for the same would not be available.
• Section 17(5) is proposed to be amended to provide that ITC shall not be available in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility (CSR) referred to in section 135 of the Companies Act, 2013.
Maximum time limit for filing of Return:
• Return in Form for filing of outward supplies return (GSTR-1), summary return (GSTR-3B) or Annual return (GSTR-9) can be filed upto a maximum period of 3 years from the due date of filing of such return.
Other Key Changes:
• Decriminalisation of certain provisions
Section 132(1) proposed to be modified to eliminate criminal charges for the specified offenses – obstruction or prevention of an officer’s duties ; tampering with or destroying evidence or documents and failure to provide information. Additionally, the monetary limit for prosecution has been raised from INR 100 lakhs to INR 200 lakhs, except in cases of issuance of invoices without supply of goods or services or both.
• Certain supplies neither to be treated supply of goods nor supply of services
Schedule III shall be amended to give retrospective applicability with effect from 1st July, 2017, so as to treat the activities/ transactions, such as, supplies of goods from a place outside the taxable territory to another place outside the taxable territory, high sea sales and supply of warehoused goods before their home clearance, as neither supply of goods nor supply of services.
2. Integrated Goods and Services Tax Act, 2017
• Proviso of Section 12(8) proposed to be removed to define the place of supply of services for transportation of goods to a registered person as the recipient’s location and in all other cases as the location where the goods are handed over for transportation, regardless of the goods’ destination, if both the service provider and recipient are located in India. Currently, as per the said proviso, if the transportation of goods is to a location outside of India, the place of supply is considered the destination of the goods.
3. Customs Act, 1962 / Custom Tariff Act, 1962
Custom Duty Rate Changes:
Chemicals and Petrochemicals:
• Basic Customs Duty (BCD) on denatured ethyl alcohol is being reduced from 5% to Nil for use in the manufacture of industrial chemicals.
• BCD on acid grade fluorspar (containing by weight more than 97% of calcium fluoride) is being reduced from 5% to 2.5%.
• BCD on crude glycerin is being reduced from 7.5% to 2.5% for use in manufacture of epichlorohydrin.
• BCD on Naphtha is being increased from 1% to 2.5%.
• BCD on styrene and Vinyl Chloride monomer is being increased from 2% to 2.5%.
Electronics good/appliances:
• BCD on electric kitchen chimney is being increased from 7.5% to 15%.
• BCD on heat coils for use in manufacture of electric kitchen chimney is being reduced from 20% to 15%.
Automobiles:
• BCD on vehicle (including electric vehicles) in Semi-Knocked Down (SKD) form increased from 30% to 35%. Further, it has been exempted from Social Welfare Surcharge(SWS).
• BCD on vehicles in Completely-Built Unit (CBU) form is being increased from 60% to 70%. Further, it has been exempted from SWS.
Others:
• BCD on import of compounded rubber increased from 10.00% to “25.00% or INR 30/kg., whichever is lower”.
• BCD on bicycles is being increased from 30% to 35%. Further, it has been exempted from SWS.
Source: Ministry of Finance
