RBSA-Budget-Finance Bill 2023-Key Proposals.pdf

1. VALUATION | INVESTMENT BANKING | RESTRUCTURING TRANSACTION SERVICES | TRANSACTION TAX | RISK CONSULTING FINANCE BILL 2023 - KEY PROPOSALS FEBRUARY BUDGET

2. Finance Bill 2023 - Key Proposals 02 Rajeev R. Shah Managing Director & CEO Ravi R. Mehta Managing Director & Head Transaction Tax Basis the foundation laid in the previous budget and the blue print drawn for India@100, the Hon’ble Finance Minister presented Budget 2023 with an endeavor to simplify taxation provisions, rationalised various provisions to reduce the compliance burden, promotes the entrepreneurial spirit and provides certain tax relief to citizens. Keeping a people-centric approach, various amendments in individual tax provisions and amendments providing benefits under the new tax-rate regime is a welcome move. Overall, the Finance Bill 2023 (FB23) aims to continue the path of fiscal consolidation by stabilizing policies and overhauling the new tax regime applicable to individuals to propel efforts towards sustainable economic growth. This Paper encapsulates the key FB23 proposals which may have a bearing on M&A transactions and Restructuring initiatives. These developments include: Wishing our Patrons a Very Happy Reading!!! The Budget 2023 • New insertions to clarify and bring about parity in the tax laws • Ease of operational process and tax incentives to IFSC • Further reliefs to start-ups • Facilitating ease while undertaking certain strategic divestment • Expansion of scope of taxability for Non-residents / Resident (not ordinary) • Distribution in the form of repayment of debt by business trust to unit holders taxable at unitholder level • Cap on deduction of capital gains on investment in residential house against sale of residential house/ capital assets to INR 100 Mn FOREWARD

3. 01 Glossary 04 02 Key Budget Highlights – Tax 05 03 Key Budget Highlights – Non-Tax 07 04 Amendment in Concessional Tax Regime (viz., New Tax Regime under S. 115BAC) 08 05 Other Key Tax Amendments in Finance Bill 2023 09 06 Caveats 25 TA BL E O F

4. Finance Bill 2023 - Key Proposals 04 GLOSSARY AO AY CG DTAA EV FB23 FVOC FY FY23 FY24 GIFT City GOI GSTN HUF IBC IFSC IFSCA INR InvIT IRDAI IT ITA ITAT JDA Mn MSME MSMED Act NR PAN PCIT PLI PSU PY RBI REIT RNOR r. w. S SC SDT SDV SEBI SEZ SG SPV SPAC STT TCS TDS TP TPO ULIP Vs w.r.t. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Assessing Officer Assessment Year Central Government Double Taxation Avoidance Agreements Electrical Vehicles The Finance Bill, 2023 Fair value of consideration Fiscal Year FY 2022-23 FY 2023-24 Gujarat International Finance Tec-City Government of India Goods and Service Tax Network Hindu undivided family Insolvency and Bankruptcy Code International Financial Services Centre International Financial Services Centre Authority Indian National Rupees Infrastructure Investment Trust Insurance Regulatory and Development Authority of India Income Tax Income Tax Act, 1961 Income Tax Appellate Tribunal Joint Development agreement Million Micro, Small & Medium Enterprises The Micro; Small and Medium Enterprises Development Act Non resident Permanent Account Number Principal Chief Commissioner of Income Tax Production Linked Incentive Scheme Public Sector Undertakings Previous year Reserve Bank of India Real estate investment trust Resident but not ordinarily resident Read with Section Supreme Court Specified Domestic Transaction Stamp duty value Securities and Exchange Board of India Special Economic Zone State Government Special Purpose Vehicle Special Purpose Acquisition Companies Securities Transaction Tax Tax Collected at Source Tax Deducted at Source Transfer pricing Transfer pricing officer Unit Linked Insurance Plan Versus With respect to

5. New provision inserted to tax income from winnings from online games. Income tax to be aggregate of 30% on net winning and income tax which would have been chargeable on remaining income of taxpayer (after reducing new winnings above). This will be effective from 1 April 2024. TDS to be done on net winnings from any online games at rates in force w.e.f 1 July 2023 Finance Bill 2023 - Key Proposals 05 KEYBUDGETHIGHLIGHTS-TAX 01 To ensure valuation of inventory as per law and prevent permanent deferral of taxes through undervaluation, tax officer may ask direct taxpayer to get inventory valuation done by a cost accountant and furnish valuation report as prescribed. Such period for inventory valuation is excluded for computing time limitation 02 Payment to MSME beyond time limits specified in MSMED Act will be allowed as deduction only on actual payment. Deduction allowed on accrual basis only if payment is within due date of MSMED Act 03 The time limit to furnish TP documentation and other information as required by transfer pricing officer (TPO) has been reduced from 30 days to 10 days, although TPO has discretion to extend by 30 days. 04 Maximum surcharge rate reduced from 37% to 25% in case of taxpayer having taxable income exceeding INR 50 Mn (maximum marginal rate reducing from 42.744% to 39%) 05 Rebate limit enhanced to INR 0.7 Mn from the existing limit of INR 0.5 Mn 06 Leave encashment limit announced to increase from existing INR 0.3 Mn to INR 2.5 Mn 07 Deployment of Joint Commissioner/ Additional Commissioner for disposal of small appeals 08 Conversion of gold to electronic gold receipt or vice versa is not liable to capital gains taxation 09

6. Finance Bill 2023 - Key Proposals 06 KEYBUDGETHIGHLIGHTS-TAX Concessional tax regime introduced for new cooperative societies which commences manufacturing or production before 31 March 2024 and does not avail of any specified incentive or deductions, may opt to pay tax at concessional rate of 15% (plus surcharge of 10%) for tax year 2023-2024 onwards 10 Income received from life insurance policies, issued on or after 1 April 2023 (other than sum received under unit linked insurance plans), having premium or aggregate of premium exceeding INR 0.5 Mn for any financial year during the term of the policy, will be taxable (except in the case of death). 11 The provision of Specified Domestic Transaction (SDT) has been expanded to cover transactions undertaken between any taxpayer with a new manufacturing cooperative society availing a concessional tax rate of 15% 12 Rate under DTAA or 20%, whichever is lower will be made applicable while deducting tax on payments of income distributed by mutual funds to non-residents 13

7. 01 Key thrust of enhanced capex – (1) accelerated build-up of infrastructure, (2) improvement in logistics efficiency of the country for better Indian manufacturing competitiveness, (3) leveraging digital opportunities Improving Governance and Investor Protection in Banking Sector Reclaiming of shares and dividends 02 For investors to reclaim unclaimed shares and unpaid dividends from the Investor Education and Protection Fund Authority with ease, an integrated IT portal will be established. 03 SEBI to govern norms and standards for education in the National Institute of Securities Markets and to recognize award of degrees, diplomas and certificates Capacity Building in Securities Market Digital Payments 04 Digital payments continue to find wide acceptance. In 2022, they show increase of 76 % in transactions and 91 % in value. Fiscal support for this digital public infrastructure will continue in 2023-24 05 The maximum deposit limit for Senior Citizen Savings Scheme will be enhanced from INR 1.5 Mn to INR 3 Mn Senior Citizens Central Data Processing Centre 06 A Central Processing Centre will be setup for faster response to companies through centralized handling of various forms filed with field offices under the Companies Act. 07 • Delegating powers under the SEZ Act to IFSCA to avoid dual regulation • Setting up a single window IT system for registration and approval from IFSCA, SEZ authorities, GSTN, RBI, SEBI and IRDAI, • Establishing a subsidiary of EXIM Bank for trade re-financing • Permitting acquisition financing by IFSC Banking Units of foreign banks • Recognizing offshore derivative instruments as valid contracts • Setting up of Data Embassies in GIFT IFSC for countries looking for digital continuity solutions. GIFT IFSC PLI Schemes 08 • The PLI schemes introduced by GOI are set to • Unlock manufacturing capacity • Boost exports • Reduce import dependence • Lead to job creation for both skilled and unskilled labor. • Industrial output would continue to grow due to resilient domestic demand Finance Bill 2023 - Key Proposals 07 KEYHIGHLIGHTS–NON-TAX

8. The scope of S.115BAC has been widened to cover all Individuals, HUFs, AOPs, BOIs whether incorporated or not, or an AJP unless option exercised under sub-section (6) of S.115BAC Concessional regime has now been made the default regime, while an option to opt for existing tax regime is available. Standard deduction of INR 0.05 Mn from salary and INR 0.015 Mn from family pension introduced in concessional regime. 0 - 0.3 Mn 0.3 - 0.6 Mn 0.6 - 0.9 Mn 0.9 - 1.2 Mn 1.2 - 1.5 Mn Above 1.5 Mn NIL 5% 10% 15% 20% 30% Income slab Tax rates Finance Bill 2023 - Key Proposals 08 AMENDMENTTOCONCESSIONAL TAXREGIME(S.115BAC) Rebate from tax is enhanced to INR 0.025 Mn from INR 0.0125 Mn where total income does not exceed INR 0.7 Mn (enhanced from INR 0.5 Mn) Surcharge rates for income exceeding INR 50 Mn is reduced to 25% from 37% Basic Exemption limit is enhanced from 0.25 Mn to INR 0.3 Mn REVISED SLAB RATES 0 0.0234 0.0624 0.1196 0.195 0 0 0.0468 0.0936 0.156 0 0.05 0.1 0.15 0.2 0.25 0.3 Mn 0.6 Mn 0.9 Mn 1.2 Mn 1.5 Mn Tax Impact due to change in slabs After FB232 Before FB23 } } 0.026 0.039 } 0.0156 } 0.0234 } 0 Taxable Income In INR Mn

9. • S.112 of the ITA, determines taxability in case of income arising from transfer of any capital assets (securities) which are of a long term nature. • Definition of ‘securities’ include market linked debentures which would attract tax @10% without indexation upon its transfer. • FB23 proposes to insert S.50AA, which specifically deals with taxability of market linked debentures as follows: ◦ The capital gains on transfer or redemption or maturity of market-linked debentures will be deemed to be short term capital gains and taxable at the rates applicable. ◦ It is also provided that no deduction will be allowed for STT paid while computing the capital gains. ◦ Further the Market linked debentures is also defined ‘as a security by ◦ whatever name called, which has an underlying principal component in the form of a debt security and where the returns are linked to market returns on other underlying securities or indices and include any securities classified or regulated as a Market Linked Debenture by SEBI’. Existing Law RBSA View FB 2023 Proposal • The proposed amendment provides clarification on the calculation of capital gains in case of market linked debentures. • It further stiffens the taxability of hybrid securities that differs from the plain vanilla debt securities by treating the gain on sale of such securities as deemed short term gain regardless of the period of holding such securities. • Proposed amendment would be detrimental for investors who have invested in the market linked debentures. Proposed Amendment, if enacted, is applicable from FY24 Finance Bill 2023 - Key Proposals 09 CAPITALGAINONTRANSFER OFMARKETLINKEDDEBENTURES

10. FB23 proposes to introduce a new sub-section (20) in S.155 of the ITA: • The new sub-section applies to a scenario wherein a taxpayer has offered an income to tax in his tax return under S. 139 in one fiscal year but the TDS on such income (for which the taxpayer wants to claim credit) has been deducted/deposited by the payer in the subsequent fiscal year. • Until now it was difficult for the taxpayer to claim credit of such TDS due to the mismatch in the year of income offering and the year of TDS deposition. • Basis the proposed Amendment, a taxpayer can make an application in the prescribed form to the Assessing Officer within two years from the end of the financial year in which such tax was deducted at source in order to claim the tax credit. • The Assessing Officer shall amend his assessment order or any intimation allowing the credit of such TDS in the relevant assessment year in which the income was offered to tax. • Additionally, the time limit prescribed under the provisions of S. 154 for passing the assessment order (i.e. a period of four years) shall be calculated from the end of the financial year in which such tax has been deducted. However, credit of such TDS shall then not be allowed in any other assessment year. • Amendment has also been proposed in S. 244A of the ITA to provide that the interest on refund arising out of the rectification order passed by the Assessing Officer shall be calculated from the date of the application to the date on which the refund is granted. FB 2023 Proposal RBSA View • The proposed amendment will reduce the current hardship faced by the taxpayer for claiming TDS credit in cases wherein the income has been offered to tax on accrual basis in the financial year and TDS on such income has been deducted and subsequently paid in the next financial year. • Additionally, the taxpayer has been granted sufficient time for filing an application before the Assessing Officer (i.e. 2 years from the end of the financial year in which tax was deducted at source). Proposed Amendment, if enacted, is applicable from 1St October 23 Finance Bill 2023 - Key Proposals 10 GRANTOFTDSCREDIT FORINCOMEOFEARLIERYEAR

11. • S.28 of the ITA provides for income chargeable to income-tax under the head profits and gains of business or profession. • Clause (iv) of the section brings to tax the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. • The provision was inserted via the Finance Act 1964. Further, Circular No 20D dated 7th July 1964 issued to explain this provision clearly stated that the benefit covered here could be in cash or in kind. • However, Courts have interpreted that if the benefit or perquisite are in cash, it is not covered within the scope of this clause of S.28 of the ITA. • FB23 proposes to clarify that any perquisite/benefit provided to any person covers transactions wherein benefit or perquisite provided is in cash or in kind or partly in cash and partly in kind. Existing Law RBSA View FB 2023 Proposal • The SC in the case of Commissioner v. Mahindra and Mahindra Ltd [2018] 93 taxmann.com 32 held that for a benefit/perquisite to be taxed under S.28(iv) should be in form other than in shape of money. Since waiver of loan resulted in extra cash in the hands of debtor, it is similar to cash receipt which is not subject to tax. • The proposed amendment overturns various Higher Appellate Authority decisions which held that benefit or perquisite in cash is outside the ambit of section 28 of the ITA. • This amendment could potentially impact companies seeking relief under IBC. Proposed Amendment if enacted, is applicable from FY24 Finance Bill 2023 - Key Proposals 11 CLARIFICATIONONBENEFITS ANDPERQUISITESOBTAINEDINCASH

12. • S.56(2)(viib) provides that where a company not being a company in which public are substan- tially interested receives any consideration from a person being a resident for issue of shares that exceeds the face value of such shares, the aggregate consideration exceeding the fair market value of shares shall be chargeable to tax under ‘ income from other sources’. • The tribunal in case of M/S Ruchi J Oil Pvt Ltd , Mumbai vs PCIT [2021] 129 taxmann.com ITAT Indore, Milk Mantra Dairy Pvt. Ltd. [2022] ITA No.413/Kol/2020 ITAT Kolkata, Chryso India Pvt. Ltd. [2019] 109 taxmann.com 16 ITAT Kolkata has held that the provisions of said section are not applicable to consideration received from non-resident investors. • FB23 proposes to omit the phrase being a resident, which will consequentially include consideration received from non-resident within the ambit of S.56(2)(viib). Existing Law RBSA View FB 2023 Proposal • The several tribunal judgements that held that the section was inapplicable in the instance of non-residents would be rendered irrelevant by the explicit insertions into the ITA that broaden the scope of the section. This could esp impact the PE/VC/FDI deals where Indian companies could obtain better share-price, including super premium, from foreign players. Proposed Amendment if enacted, is applicable from FY24 Finance Bill 2023 - Key Proposals 12 INCLUSIONOFNON-RESIDENT INVESTORSWITHINTHEAMBITOFS.56(2)(VIIB)

13. • S. 80-IAC of ITA allows a 100% tax holiday to an eligible start-up for 3 consecutive assessment years out of 10 years, beginning from the year of incorporation, at the option of such Start-up. • However, this section carried a sun-set clause for companies having incorporated on or before 31 March 2023. • FB23 proposes to extend the sun-set clause of S. 80-IAC of ITA by a year - viz., till 31 March 2024. • In other words, the eligible Start-ups incorporated till 31 March 2024 will still be eligible to claim tax-holiday benefit under S. 80-IAC. Existing Law RBSA View FB 2023 Proposal • This is a welcome move for Start-ups, which epitomizes entrepreneurship and contributes to the job creation for the economy. Proposed Amendment, if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 13 TAXHOLIDAYBENEFITOF START-UPSEXTENDEDBY1MOREYEAR

14. • As per proviso to S.79, a start up, eligible under S.80IAC is allowed to carry forward and set off the loss against the income of previous year if all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred, continue to hold those shares on the last day of such previous year and such loss has been incurred during the period of seven years beginning from the year in which such company is incorporated. • FB23 proposes to increase the period of seven years under S.79 to ten years in order to align the same with the 10-year threshold contained in S.80IAC. Existing Law RBSA View FB 2023 Proposal • The alignment of time-frame between S. 79 and S. 80IAC for the claim of tax benefit is a logical and a welcome move. Proposed Amendment, if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 14 RELIEFTOSTART-UPSINCARRYING FORWARDANDSETTINGOFFOFLOSSES

15. S.72A • As per Explanation to clause (d) of S.72A(1) the definition of strategic disinvestment includes sale of shareholding by CG or SG in a public sector company resulting into reduction of shareholding below 51% along with the transfer of control. S.72AA • S.72AA provides for set off and carry forward of losses when there is amalgamation of: • Banking companies with any other banking institution pursuant to a scheme sanctioned by CG ,or • New bank or banks with any other corresponding new bank under a scheme implemented by the CG • Government company or companies with any other Government company under a scheme sanctioned and brought into force by the CG S.72A • FB23 proposes to substitute the definition of strategic disinvestment to mean: ◦ The sale of shareholding by CG or SG or any public sector company in another public sector company or in a company resulting into reduction below 51% and ◦ Transfer of control to the buyer • It also provides that the condition of reduction in shareholding below 51% is only applicable when the shareholding was atleast 51% before such sale. S.72AA • FB23 proposes to amend S.72AA to allow carry-forward of losses in case of amalgamation of one or more banking company with any other banking institution or a company subsequent to strategic disinvestment, as long as the amalgamation takes place within a period of 5 years of strategic disinvestment. • The term ‘strategic disinvestment’ to has the same meaning as contained under S.72A. Existing Law RBSA View FB 2023 Proposal • The definition of strategic disinvestment has been expanded to include the sale of shareholding in a public sector company/ company by the CG, SG and also by any PSU in another company, including a PSU. • Expanding the scope for the allowability of carry forward and set off of losses to cover strategic disinvestment will improve valuation of these PSU and facilitate the process of privatization of various PSUs. Proposed Amendment if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 15 AMENDMENTINTHEDEFINITIONOF GOVTSTRATEGICDISINVESTMENT ANDCARRYFORWARDOFLOSSUNDERS.72AA

16. • Capital gain arising to an assessee (individual and HUF), from the transfer of capital asset, being land or building or both, under a Joint Development agreement (JDA) is chargeable to tax under S.45(5A). • For computation of capital gain, the full value of consideration shall be taken as stamp duty value (“SDV”) of share of property transferred as increased by consideration received in ‘cash’. • However, S.194-IC provides that tax shall be deducted on any sum by way of consideration (other than in kind), under joint development agreement, paid to the recipient in cash or by way of issue of a cheque or draft or any other mode. • FB23 proposes to expand the scope of S. 45(5A) of ITA to cover any consideration received in cash or by cheque, draft or any other electronic mode so as to align the same with the provisions of S.194IC. Existing Law RBSA View FB 2023 Proposal • The amendment seeks to reflect the correct intention of the law by maintaining consistency between S.194IC and S.45(5A) by avoiding ambiguity in interpretation w.r.t receipt of consideration. Proposed Amendment, if enacted, is applicable from FY24 Finance Bill 2023 - Key Proposals 16 CLARIFICATIONONFVOCFOR TRANSFEROFCAPITALASSETUNDERAJDA

17. • Under S. 197 assessee can obtain certificate from A.O. for lower/Nil TDS under various sections (excluding S.194LBA). • S.194LBA provides for deduction of tax : ◦ @10% on income distributions covered under S.10(23FC) and (23FCA) by the business trust to its resident unit holders. ◦ @5% on the income distributions covered under S.10(23FC) by the business trust to its non-resident unit holders being non-resident or a foreign company. ◦ @ rate in force on the distribution of income in the nature referred under S.10(23FCA) by the business trust to its unit holder being non-resident or foreign company. S.197 • FB23 proposes to amend S.197 to include ‘S.194LBA’ within the scope of S.197. • Accordingly, the business trust which was earlier deducting tax @5% on the interest income of non-resident unit holders can now deduct at a lower rate if the non-resident unit holders is eligible for exemption under S.10(23FE). • Tax required to be deducted under S.194LBA shall now be eligible for certificate for deduction at a lower rate or nil rates. Existing Law RBSA View FB 2023 Proposal • The proposed amendment has widened the scope of S.197 which will provide relief to the recipient of income from business trust by enabling them to apply for certificate of lower or nil rate of deduction. Proposed Amendment, if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 17 LOWERORNILRATEOFTDSON DISTRIBUTIONOFINCOMEBYBUSINESSTRUST

18. • S.170A provides that in case of business reorganization, if a return of income has already been filed by the successor company before the order of a High Court, tribunal, or Adjudicating Authority, the successor must file a modified return within six months from the end of the month in which the order is issued • There were no provision for the procedure to be followed by the A.O. on furnishing of modified return by the successor. • FB23 proposes substitution of new section for S.170A wherein under Sub-section (2): ◦ If an assessment or reassessment has already been completed before the modified return is filed, A.O. must consider the modified return and pass a modified order. ◦ If the assessment or reassessment proceeding is pending, the A.O. must pass an order in accordance with the business reorganization order and after considering the modified return filed by the successor. Existing Law RBSA View FB 2023 Proposal • The proposed amendment brings proper clarity on the assessment procedures that will be followed by the A.O. on the modified return filed by the successor pursuant to business reorganization. Proposed Amendment if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 18 ASSESSMENTAFTERFURNISHINGOF MODIFIEDRETURNBYSUCCESSORUNDER RE-ORGANISATIONNOWSPECIFICALLYLAIDOUT

19. • Section 9(1)(viii) was inserted by the Finance Act, 2019 which treated any income arising outside India, being any sum of money referred to in S. 2(24)(xviia) [viz., a benefit covered under the Gifting provisions of S. 56(2)(x)], paid on or after the 5th day of July, 2019 by an Indian resident to a non-resident, not being a company, or to a foreign company, as liable to tax in India. • FB23 proposes to expand the applicability of Section 9(1)(viii) by amending the said clause to include a person not-ordinarily resident in India as defined under clause (6) to S.6 within the purview of S.9(1). Existing Law RBSA View FB 2023 Proposal • The Amendment seeks to reflect the correct intention of the law to maintain consistency with the amendment brought in the law through Finance Act 2019 , and to maintain parity with respect between NRs and RNORs with respect to their taxation on income earned in India. Proposed Amendment if enacted, is applicable from FY24 Finance Bill 2023 - Key Proposals 19 EXTENSIONOFDEEMINGPROVISION UNDERS.9TONOT-ORDINARILYRESIDENT

20. • S.271C of the ITA provides for penalty on failure to deduct tax at source of sum equal to the amount of tax that such person failed to deduct or pay. • S.276B of the ITA provides for prosecution for failure to pay tax to the credit of Central Government. • S.194R provides for deduction of tax @10% on benefit or perquisite provided in respect of business or profession and S.194S provides for deduction of tax @1% on transfer of virtual digital assets. • In both the sections, if the consideration paid is wholly in kind or partly in cash and partly in kind, the person responsible for paying the consideration will ensure tax has been deducted and paid before releasing the consideration. • The current provisions for penalty and prosecution do not clearly mandate penalty or prosecution for a person who does not deduct and pay the tax in situations where the benefit or perquisite or transfer of digital asset only in kind. • FB23 proposes that the penalty and prosecution provisions would apply in all the cases wherein the person has failed to deduct and pay tax on payments made under S.194R, S.194S and S.194BA, whether in cash, kind or partly in cash and partly in kind. Existing Law RBSA View FB 2023 Proposal • The proposed amendment will ensure tax is deducted before releasing the consideration in kind, otherwise it could lead to penal consequences for the taxpayer. However, it would pose cashflow issues for the parties involved. Proposed Amendment if enacted, is applicable from FY 23 in case of penalty provisions for S.194R and S.194S. Proposed Amendment if enacted, is applicable from 1st July 2023 in case of penalty provisions for S.194BA. Finance Bill 2023 - Key Proposals 20 PROVISIONSTIGHTENEDTOENSURE PAYMENTOFTAXONCONSIDERATIONINKIND

21. • Section 206AB of the ITA provides for special provision for higher TDS in cases of non-filing of income-tax returns by specified persons. • Similarly, section 206CCA of the ITA provides for special provision for higher TCS in cases for non-filing of income-tax returns by specified persons. • Specified person has been defined to mean a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted or collected i. For which the time limit for furnishing the return of income under sub-section (1) of section 139 has expired; and ii. The aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in the said previous year. • As a result of this TDS is required to be deducted at a rate which is higher of the following i. At twice the rate specified in the relevant provision of the ITA; or ii. At twice the rate or rates in force; or iii. At the rate of five % • FB23 proposes to exclude certain persons who are not required to file the return of income from the definition of specified person for the purpose of section 206AB and section 206CCA of the ITA. • Such category of persons shall be notified by the Central Government in the Official Gazette. • This will entail relief to such category of notified persons from being taxed which otherwise were not subjected to tax. Existing Law RBSA View FB 2023 Proposal • The proposed amendment will provide relief to certain category of taxpayers who are currently suffering from higher TDS while receiving certain payments. Proposed Amendment, if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 21 RELIEFFROMSPECIALPROVISION FORHIGHERRATEOFTDS/TCSFOR NON-FILERSOFINCOME-TAX

22. • S.192A provides for TDS @ 10% on payment of accumulated balance due to an employee in excess of INR 0.05 Mn during the financial year under the Employees' Provident Fund Scheme, 1952. • Second proviso to S. 192A of the ITA requires the recipient to furnish the Permanent Account Number (PAN) to the person responsible for deducting such tax, failing which tax is deducted at the maximum marginal rate. • FB23 proposes to deduct TDS at the lower rate of 20% on payment of accumulated balance due to an employee not having PAN in excess of INR 0.05 Mn during the financial year. Existing Law RBSA View FB 2023 Proposal • This proposed amendment would benefit the employees not having PAN as the TDS will be capped @20% which earlier was as high as the maximum marginal rate. Proposed Amendment, if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 22 MODIFICATIONOFRATEOFTDSON ACCUMULATEDBALANCEDUETOEMPLOYEE

23. • S.48 determines capital gain by reducing the cost of acquisition and cost of improvement from Full Value of Consideration. • As per S. 24 of ITA, amount of any interest payable on borrowed capital for acquiring, renewing or reconstructing a property is allowed as a deduction under the head ‘Income from house property’. • Dual deduction of such interest expenses incurred was claimed while calculating income from house property and capital gains as well. • FB23 proposes to insert a proviso to S.48 to exclude interest expense claimed under S.24 or Chapter VIA while computing cost of acquisition and cost of improvement under S.48 of ITA. Existing Law RBSA View FB 2023 Proposal • The proposed amendment tightens the provision of S.48 by restricting the benefit of dual deduction for interest expenditure claimed by assesses under different heads of income • The amendment upholds the basic principle of claiming single deduction for single expenditure. Proposed Amendment, if enacted, is applicable from FY24 Finance Bill 2023 - Key Proposals 23 DUALDEDUCTIONONINTERESTON BORROWEDCAPITALTAKENFOR ACQUISITION, RENEWALORRECONSTRUCTIONOFHOUSEPROPERTY

24. • At present, exemption under section 54 or 54F is allowed, without any monetary limits, on LTCG upon transfer of residential property or other capital assets, as long as the assessee within a period of 1 year before or 2 year after the date of transfer, purchases, or within 3 year after that date construct, any residential house property in India. • FB23 proposes to cap the exemption allowed under S.54 and under S.54F to the maximum of INR 100 Mn. • In other words, where reinvestment in residential house exceeds INR 100 Mn, the amount exceeding INR 100 Mn shall not be taken into account for the purposes of claiming exemption under these sections. Existing Law RBSA View FB 2023 Proposal • Proposed amendment will limit the total deduction to INR 100 Mn on investment in house property, and could act as a dampner esp for premium large properties in the real-estate sector. Proposed Amendment, if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 24 CAPONROLLOVERBENEFITON PURCHASEOFRESIDENTIALHOUSE

25. This Document is of general nature only and should not be considered as any legal or tax advice. The Reader should not take any decision basis the information contained in this Document, and should be seeking a prior professional advice on the matters covered by the Document. Neither RBSA Advisors LLP nor any individual associated with this Document should be considered as making any representation or warranty with respect to its accuracy or completeness, and under no circumstances would RBSA Advisors LLP or any individuals associated with this Document be liable for any loss caused to any third party relying on any view or statement made in this Document, without entering into a formal Engagement Letter. The views provided in the Document are those of the Preparer only and are subject to change without notice. The Document shall not be copied, reproduced or further distributed by the Recipients. • S.115UA provides a pass-through status to business trusts in respect of income specified under S.10(23FC) and S.10(23FCA) (i.e. interest income, dividend income and rental income) received by the business trust from a SPV and such income is taxed in the hands of the unitholder. • FB23 proposes to widen the scope of S.115UA of the ITA to cover any distribution made by business trust to the unitholder which is exempt in the hands of the business trust as well as the unit holder. • Any sum distributed by business trust to a unit holder which is shown under the guise of repayment of debt will now be taxable in hands of unit holder under the head income from other sources via insertion of clause (xii) in sub-section (2) of S.56 of the ITA. • Further, a proviso will be added in S.56 to provide that payment received towards repayment of debt in case of redemption is to be reduced from cost of acquisition of the units to the extent such cost does not exceed the sum received. Existing Law RBSA View FB 2023 Proposal • Currently, any sum distributed as repayment of debt by the business trust to the unitholder is neither taxed at the business trust nor at the unitholder level. The proposed amendment plugs the loophole by widening the tax base for unit holders. Proposed Amendment if enacted, is applicable from FY23 Finance Bill 2023 - Key Proposals 25 TAXONANY DISTRIBUTIONBYBUSINESSTRUST DISCLAIMER

26. India Offices Global Offices 1121, Building No. 11, 2nd Floor, Solitaire Corporate Park, Chakala, Andheri Kurla Road, Andheri (E), Mumbai - 400 093 Tel: +91 22 6130 6000 Mumbai Ravi Mehta Managing Director & Head Transaction Tax ravi.mehta@rbsa.in +91 22 6130 6052 Amrita Bhatnagar Associate Director Transaction Tax amrita.bhatnagar@rbsa.in +91 22 6130 6071 607, 6th Floor, Shangrila Plaza, Road No. 2, Opposite KBR Park, Banjara Hills, Hyderabad - 500 034 M: +91 90526 60300 Hyderabad Unit No. 16, Ofﬁce No. 7, Wing D GIFT Aspire Block 12, Road 1-D, GIFT SEZ, Gandhinagar - 382 355 M: +91 97243 43847 Gift City (IFSC) Bengaluru 104, 1st Floor, Suﬁya Elite, #18, Cunningham Road, Near Sigma Mall, Bangalore - 560 052 M: +91 97435 50600 Tel: +91 80 4112 8593 Dubai 6001 Beach Road, #22-01 Golden Mile Tower, Singapore - 199589 M: +65 8589 4891 Email: singapore@rbsa.in Singapore 2001-01, Level 20, 48 Burj Gate Tower, Downtown, Sheikh Zayed Road, PO Box 29734, Dubai, UAE M: +971 52 382 2367 +971 52 617 3699 Tel: +971 4518 2608 Email: dubai@rbsa.in Abu Dhabi Unit No. 1102, Al Jamal Building, Al Ghatfah St, Al Danah, Abu Dhabi M: +971 52 617 3699 Email: abudhabi@rbsa.in Ahmedabad 912, Venus Atlantis Corporate Park, Anand Nagar Road, Prahladnagar, Ahmedabad - 380 015 M: +91 97243 44445 Tel: +91 79 4050 6000 2nd Floor, IAPL House, 23 South Patel Nagar, New Delhi - 110 008 Tel: +91 11 2580 2300 +91 99585 62211 Delhi enquiry@rbsa.in www.rbsa.in Authored By Ravi Mehta, Managing Director & Head - Transaction Tax, RBSA Advisors Finance Bill 2023 - Key Proposals 26 CONTACTUS

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