[Analysis] Changes introduced in the Lok Sabha-approved Finance Bill 2023
- Blog|Advisory|Income Tax|
- 30 Min Read
- By Taxmann
- |
- Last Updated on 25 April, 2024
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By Taxmann Advisory & Research Team
The Lok Sabha passed the Finance Bill, 2023 [hereinafter called ‘Finance Bill (Lok Sabha)’] on March 24, 2023. The Bill has been passed with more than 60 changes in the Finance Bill introduced on February 01, 2023. New amendments have been made, and some proposed amendments have been modified.
A snippet of all changes made in the Finance Bill, 2023 as passed by the Lok Sabha viz-a-viz the Finance Bill, 2023 is presented hereunder:
1. Marginal relief to a resident individual opting new tax scheme [Section 87A]
2. Scope of Section 50AA is expanded to cover specified mutual funds
3. Change in the tax rates on specified income of non-residents [Section 115A]
4. TDS provision under Section 194BA on winning from online games is effective from 01-04-2023
5. Section 206AB (non-filer of ITR) will not apply in respect of TDS on winning from online games
6. Reference of Section 194BA is given in the meaning of “rates in force” in Section 2(37A)
8. Exemption to income of credit guarantee trusts/funds
9. Insertion of reference of Section 10(23EC) in Section 11(7)
10. Meaning of the original fund expanded
13. 100% deduction in remaining 5 years to income of Offshore Banking Units [Section 80LA]
15. New TCS rate under Section 206C will apply even if the remittance is made under LRS within India
21. “Specified” sum received from business trust to be taxable as residuary income
Changes Related to GST and Custom
23. Amendment relating to GST Appellate Tribunal
26. Increase in time period for filing return before initiation of best judgment assessment
28. Specific tax based levy of GST compensation cess on commodities like pan masala, tobacco, etc.
29. Changes in Customs Duty Rates relating to few items
Changes Related to Income-Tax
1. Marginal relief to a resident individual opting new tax scheme [Section 87A]
The Finance Bill 2023 has proposed to insert a proviso to Section 87A to allow a higher rebate to the resident individual opting for the new tax scheme under Section 115BAC(1A). A rebate under Section 87A is available if his total income during the previous year does not exceed Rs. 7,00,000. Rebate is available to the extent of Rs. 25,000, and no rebate will be available if the total income exceeds Rs. 7,00,000. In other words, if the total income of a resident individual is up to Rs. 7,00,000, the tax liability shall be nil on opting for the new tax scheme under Section 115BAC(1A). However, if the total income includes the income taxable at a special rate, the rebate shall be allowed to the extent of Rs. 25,000.
The Finance Bill (Lok Sabha) has substituted said proviso to Section 87A to allow a marginal rebate if the total income marginally exceeds Rs. 7,00,000. The marginal rebate under Section 87A shall be computed in the following steps:
Step 1: Calculate tax payable on total income before rebate under Section 87A
Step 2: Calculate the difference between total income and Rs. 7,00,000.
Step 3: Calculate the difference between Step 1 and Step 2.
Step 4: If the figure in Step 3 is positive, the difference will be the rebate allowed under Section 87A. However, if the figure is negative, then no rebate shall be allowed under Section 87A.
The marginal rebate on different ranges of incomes has been computed in the below table.
| Total Income | Tax liability before rebate under Section 87A | Income in excess of Rs. 7,00,000 | Excess of tax over income | Rebate under Section 87A | Net tax liability after rebate
(before cess) |
| (a) | (b) | [(c) = (a) (-) Rs. 7 lakhs] | [(d) = (b) (-) (c)] | (e) | [(f) = (b) (-) (e)] |
| 7,00,000 | 25,000 | – | 25,000 | 25,000 | – |
| 7,10,000 | 26,000 | 10,000 | 16,000 | 16,000 | 10,000 |
| 7,20,000 | 27,000 | 20,000 | 7,000 | 7,000 | 20,000 |
| 7,25,000 | 27,500 | 25,000 | 2,500 | 2,500 | 25,000 |
| 7,27,780 | 27,780 | 27,780 | – | – | 27,780 |
| 7,30,000 | 28,000 | 30,000 | (2,000) | – | 28,000 |
| 7,40,000 | 29,000 | 40,000 | (11,000) | – | 29,000 |
2. Scope of Section 50AA is expanded to cover specified mutual funds
The Finance Bill 2023 proposed to insert a special provision of Section 50AA for the computation of capital gains arising from the transfer or redemption or maturity of Market Linked Debenture (“MLD”). Section 50AA also provided that irrespective of the period of holding of MLDs, the capital gains arising therefrom shall be deemed to be a short-term capital gain.
The Finance Bill (Lok Sabha) has expanded the scope of Section 50AA to cover specified mutual funds as well. The “specified mutual fund” means a mutual fund where not more than 35% of its total proceeds is invested in the equity shares of domestic companies.
3. Change in the tax rates on specified income of non-residents [Section 115A]
Section 115A applies to a non-resident and a foreign company. It provides for taxability of dividend, interest, royalty and fees for technical services on a gross basis without deduction of any expenditure. Where the total income of a non-resident or a foreign company consists only of incomes specified under this provision, it shall not be required to file a return of income if tax has been deducted from such incomes under this provision.
In respect to the dividend income earned by a non-resident assessee or a foreign company, Section 115A(1)(a)(A) provides that such income is chargeable to tax in India at a special tax rate of 20% (plus surcharge and health & education cess). The same rate of tax shall apply to the dividend income received on Mutual Fund units.
The royalty or fee for technical services earned by a non-resident or a foreign company, not connected to PE or a fixed place in India, shall be charged to tax on a gross basis (without deduction for any expenditure) at a special tax rate of 10% under Section 115A(1)(b)(A)/(B).
The Finance Bill (Lok Sabha) has brought the following two changes in the tax rates under Section 115A:
-
- A new proviso has been inserted in Section 115(1)(a)(A) to provide that the dividend received from a unit in an IFSC, as referred to in Section 80LA(1A), shall be taxable at 10%. The concessional tax rate of 10% shall be available to a non-resident and a foreign company;
- The 10% special tax rate on royalty income and fees for technical services earned by a non-resident or a foreign company, as mentioned in Section 115(1)(b)(A)/(B), has been increased to 20%.
4. TDS provision under Section 194BA on winning from online games is effective from 01-04-2023
The Finance Bill 2023 has proposed to bring the following two new sections under the Income-tax Act to regulate winning from online gaming:
-
- Section 115BBJ: Tax on winning from online games [effective w.e.f. 01-04-2023]
- Section 194BA: Deduction of tax at source on winning from online games [effective w.e.f. 01-07-2023]
The proposed Section 115BBJ provides that the net winnings from online games shall be taxable at the rate of 30%. Further, any person responsible for paying the winnings from online games shall deduct tax at source at the rate of 30% under the proposed Section 194BA. The provisions for tax deduction at source under Section 194BA were proposed to be effective from 01-07-2023.
The Finance Bill (Lok Sabha) changes the date of applicability of Section 194BA to 01-04-2023 instead of 01-07-2023. The consequential amendments have also been made to Section 194B w.e.f. 01-04-2023. However, the consequential amendments to Section 271C and Section 276B are still applicable from 01-07-2023.
5. Section 206AB (non-filer of ITR) will not apply in respect of TDS on winning from online games
Section 206AB provides that where a person fails to furnish his return of income for the specified period and tax deducted/collected during that period exceeds the specified limit, the deductor shall deduct the tax at a higher rate. This provision does not apply where the tax is required to be deducted under the specified provisions.
The Finance Bill (Lok Sabha) adds Section 194BA to this list with effect from 01-04-2023. Thus, the tax shall be deducted at the rate of 30% even if the deductee is a non-filer of return.
6. Reference of Section 194BA is given in the meaning of “rates in force” in Section 2(37A)
Section 194BA provides that the person responsible for paying the winning from online games shall deduct tax at the rates in force. The term “rate or rates in force” is defined under Section 2(37A). Sub-clause (ii) of Section 2(37A) lists down certain provisions of TDS for which the expression “rates in force” shall mean the rates of income-tax specified on this behalf in the Finance Act of the relevant year.
The Finance Bill, 2023 had inadvertently omitted to amend Section 2(37A)(ii) to give a reference to Section 194BA in the provision. The Finance Bill (Lok Sabha) has now amended Section 2(37A)(ii) to give such a reference to Section 194BA in the provision.
7. Exemption to be available to a “Sikkimese woman marrying a non-sikkimese” and an “Individual domiciled in Sikkim” [Section 10(26AAA)]
The existing Section 10(26AAA) granted exemption on the following incomes of a Sikkimese individual:
-
- Income accruing or arising from any source in the State of Sikkim; or
- Income by way of dividend or interest on securities.
However, the exemption was not available to a Sikkimese woman if, on or after 01-04-2008, she married an individual who was not a Sikkimese.
Explanation to Section 10(26AAA) recognised the following as ‘Sikkimese’:
-
- An individual whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961, immediately before 26-04-1975;
- An individual whose name is included in the Register of Sikkim Subjects by virtue of the Government of India Order No. 26030/36/90—ICI, dated 07-08-1990 and Order of even number dated 08-04-1991; or
- Any other individual whose name does not appear in the Register of Sikkim Subjects, but it is established beyond doubt that the name of such individual’s father or husband or paternal grandfather or brother from the same father has been recorded in the said register.
Section 10(26AAA) did not provide an exemption to a Sikkimese woman who married a non-Sikkimese individual and to those individuals domiciled in Sikkim, but their name did not appear in the Register of Sikkim. Various representations were made against such discriminatory treatment to the Government of Sikkim and the Union Finance Minister repeatedly with no success.
The Supreme Court ended[1] this discrimination and struck down the proviso to Section 10(26AAA) as being ultra vires Articles 14, 15 and 21 of the Constitution of India. Further, the court also held that all persons having a domicile in Sikkim on the day it merged with India (26-04-1975) must be covered under the Explanation in order to avail of the exemption under Section 10(26AAA).
To settle the issue and to incorporate the ruling of the Apex Court, the Finance Bill (Lok Sabha) has substituted clause (26AAA) of Section 10 with retrospective effect from 01-04-1990.
The substituted provision makes the following changes to Section 10(26AAA) w.e.f. the assessment year 1990-91:
-
- The proviso to Section 10(26AAA) has been omitted; and
- The definition of ‘Sikkimese’ has been amended to include the followings:
(a) Any other individual whose name does not appear in the Register of Sikkim Subjects but it is established that such individual was domiciled in Sikkim on or before 26-04-1975;
(b) Any other individual who was not domiciled in Sikkim on or before 26-04-1975, but it is established beyond doubt that such individual’s father or husband or paternal grand-father or brother from the same father was domiciled in Sikkim on or before 01-04-1975.
8. Exemption to income of credit guarantee trusts/funds
Section 10 of the Act provides an exclusive list of income that does not form part of the assessee’s total income. A new clause (46B) has been inserted by the Finance Bill 2023 (Lok Sabha), which exempts the income of the following specified credit guarantee trusts and funds:
-
- National Credit Guarantee Trustee Company Limited (NCGTC).
- Credit guarantee funds established and wholly financed by the Central Government and managed by NCGTC.
- Credit Guarantee Fund Trust for MSMEs (CGTMSE) created by CG and SIDBI.
This amendment will take effect from 01-04-2024 and will apply to the assessment year 2024-25 and subsequent assessment years.
9. Insertion of reference of Section 10(23EC) in Section 11(7)
Section 11(7) provides that if a trust or institution is registered under Section 12AA/12AB, then it cannot claim the exemption under other provisions of Section 10 except Section 10(23C), Section 10(46) and Section 10(1).
The Finance Bill had inserted a new clause (46A) in Section 10 to exempt any income arising to a body, authority, board, trust or commission, not being a company, which has been established or constituted by or under a Central or State Act with specified purpose and notified by the Central Government in the Official Gazette. Hence, the Finance Bill 2023 made the consequential amendment to Section 11(7) to give a reference to this new clause (46A) of Section 10.
The Finance Bill 2023 (Lok Sabha) adds one more reference to Clause (23EC) of Section 10 in Section 11(7). Section 10(23EC) exempts income received by the notified Investor Protection Fund, established jointly or separately by commodity exchanges in India, through contributions made by the exchanges and their members. However, if any amount from the fund not charged to income tax in the previous year is shared with the commodity exchange, it will be considered income for the previous year and, thus, chargeable to tax.
10. Meaning of the original fund expanded
To promote the relocation of offshore funds (“original fund”) to the IFSC in India, the Finance Act, 2021 has inserted Sections 47(viiac), 47(viiad) and Section 10(23FF) to make that relocation a tax-neutral transaction.
For this purpose, the “original fund” has been defined under Explanation to Section 47(viiac) and Section 47(viiad) as a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils the following conditions:
-
- the fund is not a person resident in India;
- the fund is a resident of a country or a specified territory with which a double tax avoidance agreement has been entered into, or is established or incorporated or registered in a country or a specified territory as may be notified by the Central Government in this behalf;
- the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; and
- fulfils such other conditions as may be prescribed.
The Finance Bill (Lok Sabha) has expanded the definition of “original fund” with effect from Assessment Year 2023-24 to include the following funds within its ambit:
-
- An investment vehicle in which Abu Dhabi Investment Authority is the direct or indirect sole shareholder or unit holder or beneficiary or interest holder and such investment vehicle is wholly owned and controlled, directly or indirectly, by the Abu Dhabi Investment Authority or the Government of Abu Dhabi; or
- A fund notified by the Central Government, subject to such conditions as may be prescribed.
11. Exemption from capital gains on transferring the interest in a JV by a Public sector company in exchange for shares in a foreign company [Section 47(xx) and Section 49(2AI)]
The Finance Bill (Lok Sabha) has inserted a new clause (xx) to Section 47 to provide that transferring the interest in a Joint Venture (JV) by a Public sector company in exchange for shares in a foreign company shall not be considered as a transfer.
The term “joint venture”, for the purposes of this clause, means “a business entity, as may be notified by the Central Government in the Official Gazette.” So, what precisely means “interest” in a joint venture will be known only after the nature of the business entity is known through Central Government’s notification issued under the Explanation.
A new sub-section (2AI) has also been added to Section 49 to provide that the cost of the interest in the joint venture shall be deemed to be the cost of acquisition of shares acquired by the Public Sector Company in such exchange.
12. Unit of IFSC allowed to opt for tonnage tax scheme after claiming Section 80LA deduction [Section 115VP]
To make the Indian shipping industry more competitive, a tonnage tax scheme for the taxation of shipping profits was introduced under the Act. Some of the basic features of the tonnage tax scheme are as follows:
-
- It is a scheme of presumptive taxation in which the income arising from the operation of a ship is determined based on the tonnage of the ship;
- The presumptive income is taxed at the applicable corporate tax rate;
- Tax is payable even if there is a loss to the shipping co. during the year;
- When a company opts for the scheme, there is a lock-in period of 10 years. If it opts out of the scheme, it is barred from re-entry for 10 years;
- Since this is a preferential taxation regime, certain conditions, like the creation of reserves, training etc., are required to be met;
- A company may be expelled in certain circumstances.
A company owning at least one qualifying ship may join. A qualifying ship is one with a minimum tonnage of 15 tons and a valid certificate.
Section 115VP(1) provides that a qualifying company has to make an application to the Joint Commissioner in Form No. 65. As per Section 115VP(2), such application has to be made within 3 months of the date of incorporation or the date on which it became a qualifying company, as the case may be.
The Finance Bill (Lok Sabha) has proposed to insert a proviso to sub-section (2) of Section 115VP to allow a unit of an IFSC, who has availed of deduction under Section 80LA, to make an application to opt for a tonnage tax scheme within three months from the date deduction under Section 80LA ceases.
Section 80LA allows a 100% deduction to a unit of IFSC for any 10 consecutive assessment years out of the 15 years from income arising from its business for which it has been approved for setting up in such a centre in an SEZ.
13. 100% deduction in remaining 5 years to income of Offshore Banking Units [Section 80LA]
Section 80LA(1) provides deduction to the following entities:
-
- A scheduled bank having offshore banking units in an SEZ (Specific Economic Zone); and
- A bank incorporated by or under the laws of a country outside India and having offshore banking units in an SEZ.
100% of income can be claimed as a deduction under Section 80LA(1) for any 5 consecutive assessment years beginning with the assessment year relevant to the previous year in which the relevant permission under Section 23(1)(a) of the Banking Regulation Act or under SEBI Act or under any other relevant law was obtained. After that, 50% of the income can be claimed as a deduction for 5 consecutive assessment years.
The Finance Bill (Lok Sabha) has inserted a new proviso after clause (b) to Section 80LA(1) to increase the amount of deduction available to the eligible assessees under Section 80LA(1) for the subsequent 5 years from 50% to 100%.
It should be noted that there is no change in the period for which deduction is available or the quantum of deduction, and the total deduction can be claimed for a maximum period of 10 years. For example, where an eligible assessee has claimed a deduction for 7 assessment years until the assessment year 2022-23, it can claim a 100% deduction only for 3 remaining assessment years starting from Assessment Year 2023-24.
14. No surcharge and cess to be levied on income from securities held by specified fund referred to in Section 10(4D)
If any income of a specified fund from securities is not exempt from tax, it is taxable under Section 115AD(1)(a) at a concessional rate. As per clause (c) of the Explanation to Section 10(4D), Category-III Alternative Investment Fund and an investment division of an offshore banking unit are treated as specified fund subject to fulfilment of certain conditions.
The Finance Bill (Lok Sabha) has provided that no surcharge and health and education cess shall be levied on income-tax calculated on the income of the specified fund taxable under Section 115AD(1)(a). This amendment will apply only when the specified fund is an AOP or trust.
The amendment shall apply from Assessment Year 2024-25 for the purpose of computing the tax liability under the normal tax regime or new tax regime under Section 115BAC(1A).
15. New TCS rate under Section 206C will apply even if the remittance is made under LRS within India
Section 206C requires the collection of tax by the seller from certain transactions like the sale of alcohol, liquor, forest produce, scrap, and so forth. Sub-section (1G) of Section 206C requires tax collection on foreign remittances made under the Liberalised Remittance Scheme (LRS) and on the sale of Overseas Tour Program Packages (TPP).
With effect from 01-07-2023, the Finance Bill 2023 proposed to amend the provisions of Section 206C(1G) as follows:
-
- 5% TCS rate in respect of any remittance made under LRS and on the sale of TPP, the rate of TCS shall be 20%;
- The threshold of Rs. 7 lakhs for exemption from TCS is allowed only when the remittance is made for the purpose of education or medical treatment [first proviso to Section 206C(1G)];
- The clarification, that tax is to be collected when the aggregate of remittance exceeds Rs. 7 lakhs, applies only when the remittance is for the purpose of education or medical treatment [second proviso to Section 206C(1G)].
The Finance Bill (Lok Sabha) has amended Section 206C(1G)(a) to omit the words “out of India” to expand the scope of the provision to the remittance made under LRS, even within India. Thus, where the remittance is made under LRS to the GIFT city, the new rates of TCS shall apply.
16. TCS rate shall not exceed 20% if collectee does not furnish his PAN or is a non-filer of income-tax return
The Finance Bill (Lok Sabha) has inserted a proviso to Section 206CC(1) and Section 206CCA(1) to provide that the rate of TCS under Section 206C shall not exceed 20% even if the collectee does not furnish his PAN or is a non-filer. These provisos have been inserted with effect from 01-07-2023.
17. A new rate of TDS from interest on a long-term or rupee-denominated bond listed on a recognised stock exchange located in an IFSC introduced [Section 194LC]
Section 194LC requires an Indian Company or Business Trust to deduct tax at source from the sum paid by way of interest on borrowing in foreign currencies or issue of long-term infrastructure bonds or rupee-denominated bonds during the specified period.
Tax is required to be deducted at the rate of 5%. However, tax is to be deducted at the rate of 4% where interest is payable in respect of long-term bonds or rupee-denominated bonds listed on recognised stock exchange located in IFSC.
The Finance Bill (Lok Sabha) has inserted a second proviso to Section 194LC(1) with effect from 01-07-2023. It provides that the tax shall be deducted at the rate of 9% in respect of money borrowed from a source outside India by issuing a long-term bond or rupee-denominated bond on or after 01-04-2023, which is listed only on a recognised stock exchange located in an IFSC.
18. Scope of exemption has been expanded to the income received by a non-resident from specified activities carried out by a specified person [Section 10(4G)]
Section 10(4G) provides an exemption to income earned by a non-resident from its portfolio subject to the following conditions:
-
- The income is received by a non-resident;
- The income is received from the portfolio of securities or financial products or funds managed or administered by any portfolio manager on behalf of such non-resident;
- The income is received in an account maintained with an Offshore Banking Unit in any IFSC, as referred to in Section 80LA(1A); and
- The income accrues or arises outside India and is not deemed to accrue or arise in India.
With effect from Assessment Year 2024-25, the Finance Bill (Lok Sabha) has extended the scope of this exemption to any income received by a non-resident from the specified activity carried out by the specified person. The Central Government may notify the activity and the person who can carry out such activity. However, the other conditions mentioned earlier shall continue to apply. Thus, the income should accrue or arise outside India and is not deemed to accrue or arise in India. Further, the income should be received in an account maintained with an Offshore Banking Unit in any IFSC.
19. Exemption to non-residents or IFSC units on the transfer of shares of a domestic company engaged in aircraft leasing business in IFSC [Section 10(4H)]
The Finance Bill (Lok Sabha) has inserted a new clause (4H) in Section 10 with effect from the assessment year 2024-25. This clause provides an exemption to income earned by a non-resident or Unit of an IFSC as referred to in Section 80LA(1A). The exemption shall be allowed subject to the following conditions:
-
- Non-resident or Unit of an IFSC must be engaged primarily in the business of leasing of an aircraft;
- Income should be in the nature of capital gains arising from the transfer of equity shares of a domestic company;
- Domestic company must be a Unit of an IFSC as referred to in Section 80LA(1A);
- Domestic company must be engaged primarily in the business of leasing of an aircraft;
- Domestic company must commence its operations on or before 31-03-2026;
- Equity shares of the domestic company must be transferred within 10 years of commencing of its operations. However, if the domestic company commenced its operations before 01-04-2024, the 10-year time limit shall be counted from 01-04-2024.
For the above purposes “aircraft” means an aircraft, helicopter, an engine or part of an aircraft or a helicopter.
20. Tax exemption for inter-corporate dividend distribution within IFSC Units engaged in the aircraft leasing business [Section 10(34B)]
The Finance Bill (Lok Sabha) has inserted a new clause (34B) in Section 10, which will come into effect from the assessment year 2024-25. This clause exempts dividend income earned by an IFSC unit primarily engaged in the aircraft leasing business. However, the exemption is subject to the condition that the company paying the dividend should also be an IFSC unit and engaged in the aircraft leasing business.
21. “Specified” sum received from business trust to be taxable as residuary income
The Finance Bill 2023 proposed to insert clause (xii) to Section 56(2) to provide that any sum received by a unit holder from a business trust is considered income of the unitholder, except if the sum received is in the nature of interest or dividend from SPV, or rental income from a REIT, or if it is taxable in the hands of the business trust under Section 115UA. The computation mechanism was also prescribed in Section 56(2)(xii).
The Finance Bill (Lok Sabha) has substituted the same with a new clause (xii) in Section 56(2). The new provision provides as under:
-
- It applies to any specified sum;
- The specified sum should be received during the previous year;
- The specified sum should be received by the unit holder from a business trust;
- The specified sum should be received with respect to a unit held by the unit holder;
- The unit can be held at any time during the previous year;
- The sum should not be in the nature of income referred to in clause (23FC) or clause (23FCA) of Section 10;
- The sum should not be chargeable to tax under sub-section (2) of Section 115UA;
- The specified sum shall be computed as per the given formula.
Explanation to Section 56(2)(xii) provides a formula for the computation of a specified sum. The following amount is included or excluded in the specified sum as per the given formula:
Inclusions of specified sum distributed by the business trust with respect to the units:
-
- During the previous year, to the unit holder who holds such unit on the date of distribution of sum;
- During any earlier previous years, to the unit holder who holds such unit on the date of distribution of sum;
- During the previous year, to the unit holder who held such unit at any time prior to the date of such distribution of sum;
- During any earlier previous years, to the unit holder who held such unit at any time prior to the date of such distribution of sum.
It is to be noted that if the sum distributed is in the nature of interest or dividend from special purpose vehicle as referred to in clause (23FC) of Section 10 or is in the nature of rental income from real estate asset directly owned by REIT as referred to in clause (23FCA) of Section 10 or it is chargeable to tax in the hands of business trust under sub-section (2) of Section 115UA, then same shall not be included in the aggregate amount of sum so distributed.
Exclusions from specified sum:
-
- Amount at which such unit was issued by the business trust.
- Amount charged to tax under Section 56(2)(xii) in any earlier previous year.
If the net figure after including or excluding the aforesaid amounts results in a negative value, the specified sum shall be deemed to be zero.
The Finance Bill (Lok Sabha) has also inserted Explanation 1 and Explanation 2 in clause (ii) of Section 48 with effect from Assessment Year 2024-25.
Explanation 1 provides that the cost of acquisition of a unit of a business trust shall be reduced and shall be deemed to have always been reduced by any sum received by a unit holder from the business trust with respect to such unit, if such sum:
-
- is not in the nature of income as referred to in clause (23FC) or clause (23FCA) of section 10; and
- is not chargeable to tax under clause (xii) of sub-section (2) of section 56; and
- is not chargeable to tax under sub-section (2) of section 115UA.
In simple words, if any sum received by a unit holder from a business trust in respect to a unit is neither chargeable to tax in the hands of unit holder nor in the hands of business trust then such sum shall be reduced from the cost of acquisition of such unit.
Explanation 2 covers the situation where the transaction of transfer of a unit is not considered as transfer under section 47 and cost of acquisition of such unit is determined under section 49. It provides that sum received with respect to such unit before such transaction as well as after such transaction shall be reduced from the cost of acquisition. Thus, if an assessee has received unit of business trust under a transaction which is not regarded as ‘transfer’, the cost of acquisition of such unit shall be reduced by the sum received from the business trust by the assessee as well as the previous unit holder provided such sum is not chargeable to tax either in the hands of the assessee, the previous unit holder and the business trust.
Though Explanation 1 and Explanation 2 to clause (ii) of Section 48 have been inserted with effect from Assessment 2024-25, they will have a retroactive effect. It means if a person holds the unit of a business trust as on 01-04-2023, any sum received from business trust in respect of such unit on or before 31-03-2023 shall be reduced from the cost of acquisition of such unit if such sum was not charged to tax in hands of unit holder or the business trust.
Any sum received (other than dividend/interest from SPV, and rental income from ReIT) on or after 01-04-2023 in respect of the units are subject to chargeability provision of Section 56(2)(xii) and will not be reduced from the cost of acquisition even if no taxable income arises in the year of distribution due to the mechanism provided for the computation of the specified sum. Similarly, if the income distributed to a unitholder is not taxable due an exemption provision, it will not be reduced from the cost of acquisition. For example, sum referred to in Section 56(2)(xii) distributed by a business trust to the Abu Dhabi Investment Authority shall be exempt from tax under Section 10(4E). Such sum shall not be reduced from the cost of acquisition even it is not taxable.
Further, the consequential amendments have been made by the Finance Bill (Lok Sabha) to Sections 10(23FE) and 115UA.
Changes Related to GST and Custom
22. Levy of IGST and GST Compensation Cess on removal of imported goods to warehouse for further manufacturing/processing
On the import of goods in India, the importer is liable to pay customs duty as well as IGST and GST Compensation Cess as per the provisions of the Customs Act, 1961 and the Customs Tariff Act, 1975. However, where the goods are stored in the customs bonded warehouse, customs duty (including IGST and GST Compensation Cess) is paid to the Government only when the goods are cleared for the home consumption. The given provisions apply even where the owner of such warehoused goods carry on any manufacturing process or other operations in the warehouse in relation to such goods.
The Finance Bill (Lok Sabha) has proposed to insert a new Section 65A under the Customs Act, 1961 which imposes IGST and GST Compensation Cess on the goods, which are moved to the warehouse for the purpose of carrying on any manufacturing process or other operations in the warehouse, at the time of removal of goods to such warehouse, instead of imposing it at the time of clearance of home consumption from the warehouse. Notably, no amendment is proposed in the existing provisions for the levy of customs duty, which will continue to be paid by the importer when the goods are cleared for home consumption from the bonded warehouse.
The proposed amendment in the Finance Bill (Lok Sabha) is aimed at simplifying the process of levy and collection of IGST and GST Compensation Cess on the subjected goods that are stored in customs bonded warehouses and undergoing manufacturing or other operations. By imposing IGST and GST Compensation Cess at the time of removal of goods to the warehouse, the Government aims to ensure that the tax liability is determined upfront and that the process of claiming Input Tax Credit (ITC) and refunds is streamlined.
In conclusion, the proposed amendment is a positive step towards simplifying the process of levy of IGST and GST Compensation Cess, availment of ITC and claim of refund in case of imported goods that undergo manufacturing or other operations in customs bonded warehouses.
23. Amendment relating to GST Appellate Tribunal
23.1 Introduction to GSTAT
The GST Appellate Tribunal (‘GSTAT’) is the forum of second appeals in GST law for filing the appeals against the orders passed by the First Appellate Authority or Revisional Authority. Since the inception of the GST law in India, GSTAT has not been set up and hence aggrieved taxpayers are left without any remedy except for filing of writ petitions which is a constitutional remedy.
With the amendment proposed in Finance Bill (Lok Sabha), various sections including Section 109 of the CGST Act, 2017 has been substituted and it is expected that Government will set-up GSTAT. Significant changes as proposed by the Finance Bill (Lok Sabha) are summarized below.
23.2 Single Principal Bench to be constituted at New Delhi
After the proposed substitution of Section 109 of CGST Act, 2017, the jurisdiction, authority and power of GSTAT shall be exercised by the Principal Bench.
The Principal Bench of GSTAT located at New Delhi will be constituted by the Government via notification and it will consist of the President, a Judicial member and one Technical members from both Centre and State.
The existing provisions, though not effective yet, empowers the ‘National bench’ and ‘Regional Benches’ for the purpose of exercising the powers of GSTAT, where the National bench consists of President, one Technical member each from Centre and State and Regional bench consists of one Judicial member and one Technical member each from Centre and State. Notably, the said provisions were struck down by the Madras High Court and it was held[2] that the administrative members outnumber the judicial member and therefore, the said provisions are unconstitutional.
For cases involving one of the matter relating to place of supply shall only be heard by Principal bench.
23.3 State Benches to be formed on request of States
It is proposed that the State benches may be constituted on the request of the States to the Government at such places and with such jurisdiction as recommended by the council. State bench would consist of two Judicial members and one Technical member each from both Centre and State.
The existing provisions, though not effective yet, under the GST law provides that the State Benches and Area benches would consist of one Judicial member and one Technical member each from Centre and State.
However, the proposed provisions does not provide clarity on whether the Union Territories can request the Government to form any Union Territory bench.
23.4 Power and function of President and Vice-President in Appellate Tribunal
The President of the Principal Bench would be empowered to distribute the business of GSTAT among the benches and may also transfer cases from one bench to another. The President is now empowered to exercise the financial and administrative powers over GSTAT as prescribed in the rules.
For State Benches, the senior-most Judicial member within the State Benches would be notified as the Vice-President and would be empowered to exercise powers of the President as prescribed. For other purposes such Vice-President will be considered as a Member.
23.5 Monetary limit for hearing of appeal by single member bench
The appeals, where the amount of tax/input tax credit/fine/fees/penalty does not exceed Rs. 50 Lakhs and does not involve any question of law, can be heard by a single member with the approval of President and subject to such conditions.
In all the other cases, the appeal shall be heard by one Judicial member and one Technical member. The existing provisions under the GST law, though not effective yet, provides the monetary limit of Rs. 5 lakhs for the above purpose.
23.6 Differences in opinion of members of Appellate Tribunal
Where the members of the GSTAT differ in their opinion on any point or points and the appeal is originally heard by the Members of a State Bench, then such a Member shall state the point or points on which they differ and the President shall refer the case for hearing to another member of the State Bench within the State. Where no such other State Bench is available within that State, then the case is to be referred to the State bench of any other State.
However, in case where the original appeal was heard by the Member of the Principal Bench, then the President would refer the case to another member from the Principal Bench. Where such other member is not available, then the case would be referred to any State Bench.
Thereafter, the referred points would be decided according to the majority opinion including the opinion of the members who first heard the case.
23.7 Time limit for filing appeal which are not filed due to non-constitution of GSTAT
As per the GST law, an appeal before GSTAT can be filed within 3 months from the date on which the order sought to be appealed is communicated. However, since GSTAT has not been constituted, the appeal in many cases could not be filed within 3 months. In this regard, the Government by way of issuing the Removal of Difficulties Order, 2019 prescribed[3] the time limit for filing the appeal before GSTAT once the same is constituted.
In this regard, it is provided that for the past cases, the appeal can be filed within 3 months (six months in case of appeals by the Government) from the date on which the President or the State President of the Appellate Tribunal enters office after its constitution. Hence, as of now, the prescribed time limit to make the application to GSTAT will be counted from the date on which President enters the office.
23.8 Eligibility to become member in GSTAT
The Finance Bill (Lok Sabha) has proposed amendments in the provisions relating to the eligibility criteria of the members of the Principal Bench and State Benches. It is noteworthy that in the proposed provisions, the advocates are not considered for being judicial members of the GSTAT.
Notably, in case of Revenue Bar Association v. Union of India [2019] 109 taxmann.com 375 (Madras), the Madras High Court has already held that excluding advocates from scope and view for consideration as Judicial members of GSTAT under Section 110(1)(b) of CGST Act, 2017 is not ultra vires to Article 14 of Constitution of India.
24. Removing the requirement of compulsory registration where exemption is granted by the Government through notification
Section 22(1) of the CGST Act provides the turnover limit for registration under the GST law. Further, Section 24 of the CGST Act provides for the category of persons who are compulsorily required to be registered under the GST law irrespective of the turnover limit. Section 23(1) provides that the following persons are not liable to tax:
-
- Person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act
- An agriculturist, to the extent of supply of produce out of cultivation of land
Further, Section 23(2) provides that the Government may by notification specify the category of persons who may be exempted from obtaining registration.
However, it has been observed that the persons who are exempted under Section 23(2) are still required to be registered under the GST law if mandated by Section 22(1) or Section 24.
Accordingly, in the Finance Bill, 2023, it has been initially proposed that the persons both specified under Section 23(1) and 23(2) are not required to be registered under the act even if mandated by Section 22(1) or Section 24 by inserting a non-obstante clause to the entire Section 23. However, the intent was to provide an overriding effect only in Section 23(2) where the specified persons are given exemption from obtaining registration through notification. Thus, an amendment is proposed the Finance Bill (Lok Sabha) to substitute the said provision wherein overriding effect is given only in Section 23(2).
25. Extension of time limit to apply for revocation of cancellation of registration from 30 days to 60 days
The taxpayer can apply for revocation of cancellation of registration where the proper officer has cancelled the registration on his own motion. The GST law provides for a time of 30 days for applying for revocation of cancellation from the date of service of the cancellation order. Further, the said time limit of 30 days can be extended to 60 days by the Additional Commissioner or the Joint Commissioner and to 90 days by the Commissioner. Hence, the taxpayer is required to apply for revocation of the cancellation within a period of 90 days, where the relevant authority approves for such extension.
It is worthwhile to note that the GST Council in its 49th meeting has recommended that the time limit for application of revocation should be extended to 90 days which may further be extended by the Commissioner to 180 days.
In order to give effect to the said proposal of increasing the time limit, it has been now proposed vide the Finance Bill (Lok Sabha) that the period of applying for the revocation, the manner and conditions and restrictions for the same shall be as prescribed in the CGST Rules. It can be observed that instead of prescribing the time limit within the Act itself, a power has been given in the Act to prescribe the said timelines, conditions and restriction by way of Rules.
26. Increase in time period for filing return before initiation of best judgment assessment
If the taxpayer who is registered under the GST law does not file the returns, the department can issue notice to such person in Form GSTR-3A requiring them to file a return within a period of 15 days. If the return is not filed by the taxpayer within the period of 15 days, the GST law empowers the department to assess based on the best judgement assessment under Section 62 in Form GST ASMT-13. If the defaulter furnishes a ‘valid return’ within 30 days, the assessment order will be deemed to have been withdrawn but the liability to pay interest and late fee shall continue.
The Finance Bill (Lok Sabha) has proposed to increase the time limit for filing of return from 30 days to 60 days for enabling deemed withdrawal of best judgment assessment orders. It has also been proposed that where the return is not filed by the taxpayer within 60 days, the same can be done in another 60 days by paying additional late fees of Rs. 200 per day (i.e. Rs. 100 CGST + Rs. 100 IGST) for delay after 60 days of the said assessment order. If the person furnishes a ‘valid return’ within extended days, the assessment order will be deemed to have been withdrawn, but the person will still be liable to pay interest under section 50(1) or a late fee under section 47.
27. Place of supply in case of services of transportation of goods where location of supplier/recipient is outside India
According to Section 13(9) of the IGST Act, 2017, the place of the supply of services of transportation of goods, where the location of the service provider or the service recipient is outside India, is the place of destination of such goods.
The GST Council in its 49th meeting has recommended to rationalize the provision of place of supply for services of transportation of goods by deletion of section 13(9) of IGST Act, 2017 so as to provide that the place of supply of services of transportation of goods, in cases where location of supplier of services or location of recipient of services is outside India, to be the location of the recipient of services.
In order to give effect to the said recommendation, the Finance Bill (Lok Sabha) has been proposed to omit the provision regarding place of supply of transportation of goods where the location of the supplier or the recipient is outside India. It implies that the place of supply of the said scenario would be determined in accordance with the general clause i.e. Section 13(2) of the IGST Act, 2017. As a consequence, the location of the service recipient would be considered as the place of supply of services of transportation of goods where either the location of the supplier or the recipient is located outside India.
28. Specific tax based levy of GST compensation cess on commodities like pan masala, tobacco, etc.
The Schedule of GST (Compensation to States) Act, 2017 has been proposed to be amended vide Finance Bill (Lok Sabha) to change the levy of GST compensation cess from ad valorem to specific tax based levy on the retail sale price for the products like Pan Masala, Tobacco and manufactured tobacco substitutes, etc.
Under the current ad valorem basis, the GST compensation cess is levied as a percentage of the value of the goods, which can lead to cases of under-invoicing and clandestine removal of goods.
Notably, the given amendment has been proposed based on the recommendations of the GST Council in its 49th meeting. By changing the levy to a specific tax based on the retail sale price, the Government aims to plug the leakages and boost the first stage collection of the revenue. Such an amendment will help in eliminating the cases of under-invoicing as well as clandestine removal of goods to a large extent.
The proposal vide the Finance Bill (Lok Sabha) relating to changes in the GST compensation cess has been summarized in the below table:
| Sl. No. | Description of supply of goods | Tariff item, heading, sub-heading, Chapter | Maximum rate at which GST compensation cess may be collected | |
| Existing Rates | Proposed Rates | |||
| 1. | Pan Masala | 2106 90 20 | 135% ad valorem | 51% of retail sale price per unit |
| 2. | Tobacco and manufactured tobacco substitutes, including tobacco products | 24 | Rs. 4170 per 1000 sticks or 290% ad valorem or a combination thereof, but not exceeding Rs. 4170 per 1000 sticks plus 290% ad valorem | Rs. 4170 per 1000 sticks or 290% ad valorem or a combination thereof, but not exceeding Rs. 4170 per 1000 sticks plus 290% ad valorem or 100% of retail sale price per unit |
It is worthwhile to note that the meaning of ‘retail sale price’ in various scenarios has been explained by way of an Explanation to the said Schedule.
29. Changes in Customs Duty Rates relating to few items
The Finance Bill (Lok Sabha) provides some changes in the Customs duty rates, which are summarized below:
| HSN Code | Description of Goods | Old Import Duty | New Import Duty |
| 9022 14 10 | X-ray generators and apparatus | 10% | 15% |
| 9022 14 20 | Portable X-ray machine | 10% | 15% |
| 9022 14 90 | Others | 10% | 15% |
| 2933 59 50 | Bispyribac-sodium (ISO) | 7.5% | 10% |
[1] Association of Old Settlers of Sikkim v. Union of India [2023] 146 taxmann.com 271 (SC)
[2] Revenue Bar Association v. Union of India [2019] 109 taxmann.com 375 (Madras)
[3] Order No. 9/2019-Central Tax, Dated 3-12-2019
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