Finance Act 2023: Unveiling the Latest Amendments

Finance Act 2023: Unveiling the Latest Amendments

Author- Tanvi Thapliyal

The Finance Act 2023 is a crucial part of India's financial landscape. It carefully outlines the fiscal policies and tax strategies for the financial year 2023-24 and those coming ahead. This important document aims to promote economic stability and growth. It not only explains the government's tax proposals but also carefully distributes budget resources, providing a detailed plan for economic progress. The Finance Act 2023 plays a crucial role in guiding the nation's economy and setting the path for sustainable growth and development.

This article aims to explore the Finance Act 2023 in more detail, discussing its importance and the effects it may have. This article aims to help readers understand the fiscal policies and tax reforms introduced by the government by examining the details of the Act and analysing its effects on different sectors of the economy. Moreover, it seeks to show how a deep understanding of the Finance Act 2023 can give individuals, businesses, and policymakers the ability to make well-informed choices and successfully navigate the constantly changing financial environment.

LIST OF AMENDMENTS UNDER THE FINANCE ACT,2023

1. Amendments in tax rates

The Finance Act 2023 brings about important changes in tax rates, which will have a big impact on how taxes are calculated in India for the fiscal year 2023-24. The goal of these changes is to make the tax system more efficient, encourage people to follow the rules, and boost the economy. Now, let's take a closer look at the main changes:

There has been a revision in the Alternate Tax Regime (Section 115BAC)

• The basic exemption limit under Section 115BAC has been revised to INR 3,00,000.
• The tax slabs have been restructured so that each slab applies to an additional INR 3,00,000 of income.
• The highest slab rate for income exceeding INR 15,00,000 remains at 30%.
• The threshold limit for rebate under Section 87A has been increased to INR 7,00,000 for taxpayers who choose to use the new tax regime.

Reduction in surcharge rates

• The surcharge rate on income above INR 5,00,00,000 has been reduced from 37% to 25%.

Regarding the applicability and deductions

• The alternate tax regime under Section 115BAC also applies to Associations of Persons (AOP), Bodies of Individuals (BOI), and Artificial Juridical Persons (AJP).
• Employees who choose the new tax regime can now benefit from the standard deduction from salary income and deduction from family pension.

Special Provisions

• Starting from April 1st, 2023, Manufacturing Cooperative Societies established on or after that date will benefit from a reduced tax rate of 15% as per Section 115BAE.
• Section 115BBJ states that there is a tax rate of 30% on winnings from online gaming.
• Cooperative societies that choose the alternate tax regime under Section 115BAE are not required to pay Alternate Minimum Tax (AMT).

 Alternate Minimum Tax (AMT)

• The Alternative Minimum Tax (AMT) is a type of tax that is imposed as an alternative to the regular tax. It is applicable to individuals and other non-corporate taxpayers whose adjusted annual income exceeds Rs. 20 lakhs.
• The rate of Alternative Minimum Tax (AMT) for cooperative societies has been reduced from 18.5% to 15%.
• The Alternative Minimum Tax (AMT) guarantees that individuals pay a consistent tax rate on their income, regardless of any deductions they may claim under the regular tax system.

2. Amendments in Deductions and Exemptions

The Finance Act 2023 brings in some important changes regarding deductions and exemptions, with the goal of making the tax provisions more organised and clear. These are the main changes:

Regarding the treatment of life insurance policy receipts:

• Any receipts from life insurance policies issued on or after April 1st, 2023, that exceed ₹5,00,000 in a given year will be considered as income from other sources.
• However, the exemptions for proceeds in the event of the insured person's death are still the same.

Regarding the exemption for Offshore Derivative Instruments (ODIs)

• Income that comes from offshore derivative instruments (ODIs) that were made with an offshore banking unit of an International Financial Services Centre (IFSC) is not subject to tax according to Section 10(4E).

Regarding the withdrawal of exemption for news agencies

• The exemption for news agencies under Section 10(22B) has been removed.

Extension of tax exemption under Section 10(46A)

• The tax exemption under Section 10(46A) applies to non-corporate entities that are created by a Central or State Act.
• These entities are focused on activities like housing, urban development planning, and regulatory work that benefits the public.

Deduction under Section 10AA

• Section 10AA allows units that are set up in special economic zones (SEZs) to claim deductions.
• From 2006 to April 1st, 2021, any units that started manufacturing or producing articles, things, or computer software in any SEZ can claim a 100% deduction on profits and gains from export for five consecutive assessment years.
• Afterwards, individuals are able to receive a 50% deduction for the next five assessment years. They can also receive an additional 50% deduction for the following five years, as long as the amount is recorded as a debit in the profit and loss account.

Basically, these amendments are designed to make sure people follow the rules, make deductions more logical, and update tax policies to match the changing economy. It is crucial for taxpayers and businesses to understand these changes so that they can effectively optimise their tax planning strategies.

3. Participants of the Agnipath Scheme are eligible for certain tax provisions

The Agnipath Scheme was started in 2022 with the goal of helping people achieve financial independence and security. It does this by encouraging individuals to make systematic investments in the Agniveer Corpus Fund. People who take part in this programme receive tax benefits and incentives, which helps to encourage a mindset of saving money and making long-term financial plans.

• The Finance Act 2023 includes new tax rules designed specifically for individuals who are part of the Agnipath Scheme.
• These rules are meant to encourage people to join the scheme and help them improve their financial stability. These are the main points:

There is an exemption for receipts from the Agniveer Corpus Fund

• Receipts from the 'Agniveer Corpus Fund' by individuals who are enrolled under the 'Agnipath Scheme 2022' are not subject to tax according to Section 10(12C).
• There are deductions available under Section 80CCH.
• Individuals who are enrolled in the Agnipath Scheme on or after November 1st, 2022, can avail deductions under Section 80CCH. The deduction amount is the same as the contributions made to the Agniveer Corpus Fund.
• Participants can benefit from this deduction in both the old and new tax regimes, regardless of the taxation method they choose.

The treatment of central government contributions is as follows:

• The Central Government considers the contributions made to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme as salary under Section 17.
• Similarly, participants are allowed to deduct the same contribution amount under Section 80CCH, which ensures that there is no tax disadvantage for them.

Basically, these tax provisions support the government's goal of promoting financial inclusion and encouraging people to take part in programmes that benefit them. It is important for people who are thinking about joining the Agnipath Scheme to understand these rules. This will help them make the most of the tax advantages and protect their financial future in the best way possible.

4. Amendments to business and professional income

The Finance Act 2023 introduces important changes regarding income from business or profession. These changes are designed to make procedures simpler, encourage timely payments, and offer relief to taxpayers. Here are the main changes:

Deductions for payments made to Micro, Small, and Medium Enterprises (MSMEs) under Section 43B:

• You can deduct sums payable to Micro, Small, and Medium Enterprises (MSMEs) on a payment basis according to Section 43B.
• The purpose of this amendment is to promote prompt payments to micro and small enterprises.
•  It states that deductions can only be made when payments are actually received.

The tax treatment of payments and disclosures for micro and small enterprises (MSEs) is as follows

• The Income Tax Act requires that financial statements include information about any outstanding balances and interest owed to Micro and Small Enterprises (MSEs).
• The GST provisions state that payments must be made to vendors, including MSEs, within a period of 180 days.
•  If you fail to do so, the Input Tax Credit will be reversed and you may also be charged applicable interest.

The threshold limits for choosing presumptive taxation schemes under Section 44AD and Section 44ADA have been raised to INR 3 crores and INR 75 lakhs, respectively.

The tax audit requirement is removed for individuals who choose to participate in presumptive schemes, thanks to the consequential amendments made under Section 44AB.

Presumptive Taxation:

• The Presumptive Taxation Scheme, as per sections 44AD, 44ADA, and 44AE of the Income Tax Act, offers a way for small taxpayers to be exempt from the requirement of maintaining books of accounts and undergoing audits.
• If you are eligible for this scheme, you can declare your income at the prescribed rates instead.
• The threshold limits for choosing presumptive taxation schemes under Section 44AD and Section 44ADA have been raised to INR 3 crores and INR 75 lakhs, respectively.
• The tax audit requirement is removed for individuals who choose to participate in presumptive schemes, thanks to the consequential amendments made under Section 44AB.

The purpose of these amendments is to make tax procedures more efficient, encourage people to follow the rules, and offer assistance to taxpayers, particularly small businesses and individuals who are part of certain programmes. It's really important for taxpayers to understand these changes so they can make the most of their tax planning strategies and make sure they're following the changing tax laws.

5. Amendments in Capital Gains

The Finance Act 2023 brings in some important changes regarding capital gains. These changes are aimed at making things clearer, encouraging investment, and adapting to the changing market conditions. Here are the main changes that you should know about:

The treatment of gold transactions is as follows:

• When you convert physical gold into Electronic Gold Receipts (EGR) or vice versa, as long as it is done by a Vault Manager registered with SEBI, it will not be treated as a transfer for capital gains taxation.

Intangible assets

• If no payment has been made to acquire intangible assets and rights, their cost will be considered as zero.

Exemptions available under Sections 54 and 54F.

• As per the tax laws, both individuals and Hindu Undivided Families (HUFs) have the option to claim a maximum exemption of ₹10 crores under Sections 54 and 54F.
• This exemption is designed to provide relief to taxpayers when they make capital gains from certain transactions.

Tax exemption available for offshore fund relocation.

• There won't be any taxes on the transfer of capital assets when an offshore fund moves to an International Financial Services Centre (IFSC).
• The deadline for the relocation has been extended to March 31, 2025.

The provisions of the Joint Development Agreement

• The provisions related to Joint Development Agreements are in line with the TDS provisions mentioned in Section 194-IC.
• The stamp duty value of the property received will be considered in full, along with any cash or other forms of consideration received.

Taxation of Market Linked Debentures

• The gains you make from selling, redeeming, or when Market Linked Debentures reach maturity will be subject to short-term capital gains tax under Section 50AA, starting from April 1, 2023.

The purpose of these amendments is to make things clearer, encourage investment in specific sectors, and make it easier for taxpayers involved in capital transactions to comply with the rules. It's really important for investors and taxpayers to understand these changes so they can make the most of their investment strategies and make sure they follow the updated tax rules.

6. Impact on charitable and religious trusts.

The Finance Act 2023 brings in important changes that will impact how charitable and religious trusts are managed and taxed. The main goal is to improve transparency, ensure compliance, and enhance accountability. Here are the main changes that have been made:

Use of corpus and loans by utilising them effectively

• If a charitable or religious trust uses its corpus, loans, or borrowings before April 1, 2021, it will not be considered as an application for charitable or religious purposes.
• However, this is only the case if the amount is later deposited back into the corpus or if the loan is repaid.
• If you want to use the repayment of a loan or investment for charitable or religious purposes, it must happen within 5 years of when the money was first used.

Donations between trusts or institutions:

• When one trust or institution donates to another, it will be considered as using up to 85% of the donated amount.

Eligibility for deductions:

• Some funds, such as the Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation, are not eligible for deductions under Section 80G.

Compliance and registration

• Trusts and institutions should directly apply for regular registration instead of provisional registration.
• If you provide false, inaccurate, or incomplete information during registration, the Income Tax authorities may revoke your submission.

The tax on accreted income

• The provisions for tax on accreted income under Section 115TD have been extended to trusts or institutions that have not applied for re-registration.

The filing requirements are as follows:

• If you are a trust or institution, you need to submit Form 9A and Form 10 at least two months before the deadline for filing your income tax return. This is necessary if you want to claim accumulation of income.
• The time given for submitting income tax returns does not include the time needed for submitting an updated return.

The registration rules have been revised.

• The Finance Bill 2023 suggests some changes to the registration rules. It aims to remove the rollback provisions and also requires provisional registration before starting any activities.

Reporting Norms

• Starting from October 2023, there will be improved rules for reporting and disclosing information about charitable trusts.
• These rules will require trusts to specify whether their activities are religious, charitable, or both.
•  Additionally, trusts will need to provide details about any donations they receive that are above ₹2 lakhs in a single day.

The purpose of these amendments is to make operations more efficient, improve how things are managed, and make sure that the charitable and religious trust sector follows all the necessary rules and regulations. This will help create more transparency and accountability. It is important for trustees and administrators to understand these changes so that they can comply with the rules and take advantage of tax benefits while also achieving their philanthropic goals.

7. Amendments w.r.t. Assessment & Appeals

Taxpayers have the option to file appeals against penalty orders that have been imposed by the Commissioner (Appeals) under certain sections, which include 271AAB, 271AAC, and 271AAD. Furthermore, if the Principal Chief Commissioner or Chief Commissioner issues revision orders under Section 263, there is a possibility to appeal against them. In addition, the amendment also permits the filing of a memorandum of cross-objections in all cases that can be appealed to the Appellate Tribunal.

• Joint Commissioner (Appeal): There is now a new appellate authority called the Joint Commissioner (Appeal) that has been introduced for certain types of taxpayers, like individuals and Hindu Undivided Families (HUFs). This is to help speed up the process of resolving appeals.
• The proposed amendment aims to give the Central Government the authority to make changes to directions regarding faceless schemes and e-proceedings. These changes can be made at any time through a notification in the Official Gazette.
• The Interim Board for Settlement has extended the time limit for disposing of pending rectification applications. The time limit for amending an order or making an application to it will be extended to 30.09.2023 if it expires between 01.02.2021 and 01.02.2022.
• The deadline for completing the scrutiny and best judgement assessment has been extended from 9 months to 12 months. This change will be effective starting from the Assessment Year 2022-23.
• A new provision has been suggested to give more authority to the Assessing Officer. They will now have the power to request a cost audit for inventory valuation before conducting an assessment.
• The deadline for submitting a return in response to a notice under Section 148 is within 3 months from the end of the month in which the notice is issued. If the assessee requests it, the Assessing Officer may grant additional time.
• The specified authority responsible for granting approval for issuing a notice under Section 148 and Section 148A, if more than three years have passed since the end of the relevant assessment year, will be the Principal Chief Commissioner, Principal Director General, Chief Commissioner, or Director General.

8. Amendments about how losses can be offset and carried forward in income tax laws.

The definition of 'Strategic Disinvestment' (Section 72A) has been modified. The definition of 'strategic disinvestment' in Section 72A has been updated. The new policy allows for the Central or State Governments, as well as public sector companies, to sell their shares in other public sector companies. This can result in the reduction of their shareholding below 51% and the transfer of control to the buyer. This amendment broadens the range of transactions that qualify for specific tax benefits regarding the offset and carry forward of losses.

• There has been an amendment in Section 72AA. This amendment allows for the carry forward of accumulated losses and unabsorbed depreciation when a banking company merges with another banking company within five years of the strategic disinvestment.
• This provision is designed to offer tax relief in situations where banking companies merge, allowing them to carry forward specific losses and depreciation.
• Eligible startups will now be able to extend the time limit for setting off and carrying forward losses incurred during their first ten years of incorporation.
• This extension applies even if there has been a change in shareholding, as long as all shareholders continue during the relevant period. In the past, the time limit for this provision was seven years.
• This extension, which increases the time frame from seven to ten years, gives startups more flexibility to use their losses for tax purposes. This change aims to encourage entrepreneurship and foster innovation.

The purpose of these amendments is to offer tax relief and assistance to specific types of entities. This includes companies that are going through strategic disinvestment, banking companies involved in amalgamations, and startups. These entities will be allowed to offset and carry forward any losses they incur during certain transactions or periods.                 

9. The amendments referring to are related to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) regulations.

• There is a proposal to increase the threshold limit for TDS under Section 194N from INR 1 crore to INR 3 crore for cooperative societies. So, what this means is that cooperative societies won't have to pay TDS on cash withdrawals up to INR 3 crore.
• There has been an increase in the rate of TCS for foreign remittances under the Liberalised Remittance Scheme (LRS) and purchase of overseas tour programmes. The rate has been raised from 5% to 20%. So basically, what this means is that a larger amount of tax will be collected directly from these transactions.
• Regarding TDS on winning from online gaming, there will be no threshold benefit and TDS will be applicable. The tax will be deducted either when you withdraw the money or at the end of the financial year.
• The exemption from TDS on interest payments on listed debentures will be removed. The exemption from Tax Deducted at Source (TDS) on interest payments for listed debentures has been eliminated. So, what this means is that from now on, TDS will be applicable on the interest payments made on listed debentures.
• If you don't provide your PAN while withdrawing from EPF, the TDS on the withdrawal will be 20% instead of the maximum marginal rate.
• The scope of Section 197 has been expanded to include Section 194LBA. Unit holders who receive income from business trusts can now obtain lower or zero deduction certificates.
• The government has made amendments to Sections 206AB and 206CCA. These amendments state that individuals who are not required to file a return of income and have been notified by the government are now excluded from the scope of Sections 206AB and 206CCA.
• Non-residents or foreign companies can avail TDS relief. When certain income is paid to them, TDS will be deducted at a rate of 20% or the rate mentioned in a tax treaty, whichever is lower. However, the payee must provide a tax residency certificate to qualify for this relief.
• An amendment has been made to address the TDS mismatch problem in Section 155. You can apply to the Assessing Officer within two years of the financial year in which the tax was withheld to claim TDS credit. Section 244A has also been amended to include interest on refunds that result from rectification.

10. The amendments about penalties and prosecutions

• The penalty for submitting inaccurate Statement of Financial Transactions (SFTs) due to incorrect information provided by account holders is ₹5,000. Financial establishments will be responsible for paying this penalty. The financial institution can recover the fine from the account holder.
• There have been changes made to Section 271C and Section 276B. These changes involve penalties and prosecution for cases where the person responsible for deducting tax fails to make sure that tax has been paid according to Section 194R, Section 194S, and Section 194BA.
•  Failure to deduct or pay taxes as required under these sections can result in penalties and potential prosecution.
• The decriminalisation of certain acts of omission by liquidators under Section 276A: Starting from April 1, 2023, certain acts of omission by liquidators have been made legal under Section 276A of the Income Tax Act.
• In the past, Section 276A stated that a liquidator who didn't give notice as required by Section 178 or didn't set aside the required amount, or who disposed of any company assets or properties against the section's provisions, could be prosecuted and face up to two years of rigorous imprisonment. The amendment ensures that certain acts of omission by liquidators may no longer result in criminal prosecution.

The purpose of these amendments is to make sure that people follow tax laws by imposing penalties and prosecutions for different violations. They also include measures to make sure that financial reporting is accurate and to make certain acts legal in order to make it easier to do business.

11. Other proposed amendments for different aspects of taxation and regulatory measures

• The Central Government will establish a consistent method for determining the value of perquisites that result from an employer providing an employee with rent-free or discounted accommodation. The goal is to establish a standardised process for evaluating these benefits.
• Business trusts are planning to change the way they tax distributions to unit holders. They want to start taxing unit holders when they receive distributions that are considered debt repayment. It means that these distributions will be taxed.
• Authorities have the ability to adjust income tax refunds if there is any outstanding tax due. However, they must first provide written notice before doing so.
• If there is a pending assessment or reassessment, it is necessary to provide written reasons for not issuing the refund. You won't have to pay any extra interest on the refund while it's being withheld until the assessment is completed.
• PACS and PCARD have recently been granted the authority to accept cash deposits and offer loans to their members up to ₹2 lakhs. The limit mentioned also applies to when you need to repay these loans or deposits.
• Non-Banking Financial Companies (NBFCs) that have been notified are exempted from the thin capitalization provisions stated in Section 94B.The proposed change is to shorten the deadline for submitting information or documents in tax proceedings. Currently, the deadline is set at 30 days, but it is being suggested to reduce it to 10 days. However, there will still be an option to extend the deadline by an additional 30 days.
• The scope of Section 56(2)(viib) has been expanded. Now, it applies to share application money/premium received from any person, regardless of their residential status. It means that angel tax can also be imposed on the extra money received from non-resident investors as share application money or premium.
• There is an amendment in Section 92BA. The amendment states that transactions between cooperative societies that choose a different tax regime under Section 115BAE and other individuals with a close connection will now be considered as 'specified domestic transactions'.
• The tax treatment of gifts received by individuals who are classified as Resident but Not Ordinarily Resident (RNOR) has been amended in Section 9. According to the amendment, gifts received by RNORs will now be considered as accruing or arising in India for tax purposes.
• The abolishment of Section 88 and the consequential amendments aim to simplify the act and eliminate unnecessary provisions. Changes have been made to several other sections such as 80C, 80CCC, 80CCD, 54EA, 54EB, 54EC, 54ED, 111A, and 112.
• The IFSCA regulates Alternative Investment Funds (AIFs). The International Financial Services Centres Authority (IFSCA) has introduced the International Financial Services Centres Authority (Fund Management) Regulations, 2022.
• These regulations are aimed at governing fund management entities. Various sections have been amended to ensure that AIFs are regulated under the mentioned regulations.

The amendments that have been made cover a variety of different areas, such as taxation, regulation, and procedural matters. The goal of these changes is to make processes more efficient, improve compliance, and make it easier to do business.

Conclusion

The amendments introduced in the Finance Act 2023 have a significant impact on tax appeal procedures and assessment processes. The goal is to make operations more streamlined, improve efficiency, and promote transparency. Now, taxpayers have the opportunity to appeal penalty orders and revision orders. They can also file cross-objections to ensure a fair and thorough review process. The Joint Commissioner (Appeal) has been introduced to provide focused assistance to certain groups of taxpayers, making the resolution process faster and more efficient. In addition, the extensions to time limits for pending rectification applications and assessment completion demonstrate a dedication to ensuring that tax matters are resolved fairly and promptly. The amendments aim to modernise tax administration, give more power to assessing officers, and update procedures to keep up with changing regulatory frameworks. It's really important for taxpayers and tax professionals to keep up with these changes so they can navigate the tax landscape well and make sure they're following the new rules.