Business Standard

Experts welcome changes related to withholding tax hike in Finance bill

As per the Finance Bill, specified mutual funds where at least 65 per cent investment are in equity shares of domestic companies are also included in scope of the above deeming provision

Finance Ministry, Ministry of Finance

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IANS New Delhi
With the Finance Bill 2023 having been passed in Lok Sabha through voice vote, it has suggested a slew of amendments namely hike in the withholding tax from 10 per cent to 20 per cent on royalty and fees for technical services payments to non-residents and waiver of surcharge on capital gains earned by GIFT Category III.
Experts have welcomed the amendments made in the Finance Bill 2023, with Rajesh Srinivasan, Partner, Deloitte India, saying: "The proposed increase in withholding tax rates (from 10 per cent to 20 per cent) on royalty and fees for technical services payments to non-residents is likely to have an impact on the import of technology into India. The introduction of a beneficial withholding tax rate of 10 per cent under Section 115A for dividends received by non-residents from IFSC units as per Section 80LA, is a significant step towards incentivising investment from non-residents into IFSC."
He further said that the extension of the 194LC benefit was an anticipated amendment, which was initially missed out on in the budget last month but has now been rectified.
Despite the proposal for a higher withholding tax rate of 9 per cent instead of the existing 5 per cent, this is a welcome move since the scope of the section is being expanded to include interest in certain bonds listed in stock exchanges located in IFSC. This may provide more funding options to Indian entities.
Srinivasan also said that the waiver of surcharge on capital gains earned by GIFT Category III is a positive development that will help attract more investors to the Gujarat International Finance Tec-City (GIFT City).
Alok Agrawal, Partner, Deloitte India, said: "In 2014, the government had increased holding period for debt-oriented mutual funds from 12 to 36 months (for gains from sale of debt-oriented mutual funds held for more than 12 months were eligible to be taxed at concessional rate of 10 per cent plus applicable surcharge and cess, without indexation). As per the budget proposals, capital gains earned on redemption of market linked debentures (MLDs) would be deemed to be treated as short-term capital gains taxable at slab rates without any indexation benefit, irrespective of the holding period."
As per the Finance Bill, specified mutual funds where at least 65 per cent investment are in equity shares of domestic companies are also included in scope of the above deeming provision (alongwith MLDs).
This will increase the tax liability for those taxpayers who will make new long-term investments from April 2023 (more than three years) in the above debt funds, as compared to existing investments in such instruments made until March 31, 2023.
--IANS
ans/pgh
 

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Mar 24 2023 | 7:51 PM IST

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