LOK SABHA PASSES FINANCE BILL WITH 64 AMENDMENTS: THE STING IN THE TAIL

Debt mutual funds lose long-term tax advantage. STT on F&O hiked by 25%; tax on royalty fee doubled. Finance secretary-led panel to address threat to pension reforms

- KG NARENDRANATH

FINANCE BILL, 2023 proved to have an unexpected sting in the tail, with the government moving as many as 64 amendments before it was passed by the Lok Sabha on Friday.

The amendments included an unsettling tax blow to debt mutual funds, and a hike in the transaction tax on futures and options by 25% each.

At a broader level, these and the several other changes in the Bill, which was tabled in Parliament on February 1 along with a generally acclaimed and pain-free Union Budget 2023-24, displayed the government's intent to ensure a level playing field among different asset classes and minimise arbitrage opportunities for investors, irrespective of their profiles and even domiciliary status.

Finance secretary T V Somanathan made the government's stand clear when he said, "income earning instruments should be treated as income earning instruments, that is the direction in which it is going." The changes also reflect a policy thrust to spur flow of funds into the real economy and the financial sector, as the many tax sops with regard to the country's lone international financial services centre (Gujarat International Finance Tech-city or GIFT City) would testify.

A few tax loopholes have been plugged diligently, as deft tax planners, including high net worth individuals, large fund houses and firms have been found to take unfair advantage of them.

All capital gains of debt mutual funds those with 35% or less of assets under management in domestic equities - acquired on or after April 1, 2023 will now be taxed at the slab rate of the investor. As the concept of long-term capital gains has been done away with for this asset category, its competitive edge with term deposits in banks will be blunted.