From UPSC perspective, the following things are important :
Prelims level : Finance Bill
Mains level : Finance Bill
The Parliament has passed the Finance Bill 2020 with 40 amendments without any discussion.
Highlights of the Bill
- Among the important amendments included was one enabling the government to raise additional excise duty on petrol by up to Rs 18 per litre and diesel by up to Rs 12 per litre when required.
- Amendments enabling the taxation of NRIs’ India-controlled income above Rs 15 lakh, and another extending the DDT exemption to REITs and Infrastructure Investment trusts were passed.
- The Bill also changes the definition of ‘Resident’, as stipulated under the Income Tax Act.
- Presently, a person is considered a resident of India, i.e. their global income is taxable in India if they are in the country for more than 182 days a year. This has now been reduced to 120 days.
- The amendments also include provisions for levying TDS of 1 per cent on e-commerce transactions.
What is a Finance Bill?
- As per Article 110 of the Constitution, the Finance Bill is a Money Bill.
- The Finance Bill is a part of the Union Budget, stipulating all the legal amendments required for the changes in taxation proposed by the Finance Minister.
- This Bill encompasses all amendments required in various laws pertaining to tax, in accordance with the tax proposals made in the Union Budget.
- The Finance Bill, as a Money Bill, needs to be passed by the Lok Sabha — the lower house of the Parliament. Post the Lok Sabha’s approval, the Finance Bill becomes Finance Act.
Difference between a Money Bill and the Finance Bill
1) Money Bill
- A Money Bill has to be introduced in the Lok Sabha as per Section 110 of the Constitution. Then, it is transmitted to the Rajya Sabha for its recommendations.
- The Rajya Sabha has to return the Bill with recommendations in 14 days.
- However, the Lok Sabha can reject all or some of the recommendations.
2) Finance Bill
- In a general sense, any Bill that relates to revenue or expenditure is a Financial Bill.
- The Finance Bill is introduced in Lok Sabha.
- Rajya Sabha can recommend amendments in the bill. However, the bill has to be passed by the Parliament within 75 days of introduction.
>Types of Finance Bills
- Financial Bill Cat-1 is a bill which contains any of the matters specified in Article 110 but does not exclusively deal with such matters.
- For example- a bill which contains a taxation clause, but does not deal solely with taxation under Article 117 (1), has two features in common with a money bill.
- It cannot be introduced in the Rajya Sabha.
- It can only be introduced in Lok Sabha with the prior recommendation of the President.(Similarities)
- But has one feature uncommon that is, not being a Money Bill, the Rajya Sabha has the same power to reject or amend such Financial Bill subject to limitation.
- It is a finance bill which merely involves expenditure and does not include any of the matters specified in Article 110.
- It is an Ordinary Bill and may be initiated in either House and the Rajya Sabha has full power to reject or ament it.
- It is thus apparent that all Money Bills are Financial Bills but all Financial Bills are not Money Bills.
Who decides the Bill is a Finance Bill?
- The Speaker of the Lok Sabha is authorised to decide whether the Bill is a Money Bill or not.
- Also, the Speaker’s decision shall be deemed to be final.
Why Finance Bill is needed?
- The Union Budget proposes many tax changes for the upcoming financial year, even if not all of those proposed changes find a mention in the Finance Minister’s Budget speech.
- These proposed changes pertain to several existing laws dealing with various taxes in the country.
- The Finance Bill seeks to insert amendments into all those laws concerned, without having to bring out a separate amendment law for each of those Acts.
- For instance, a Union Budget’s proposed tax changes may require amending the various sections of the Income Tax law, Stamp Act, Money Laundering law, etc.
- The Finance Bill overrides and makes changes in the existing laws wherever required.
What changes can be made via Finance Bill?
- The most awaited changes in the tax proposals in the Union Budget usually pertain to personal income tax.
- For taxpayers across the country, the most awaited moment is when the Finance Minister’s speech announces an increase in minimum income threshold, or declares any changes in income tax slabs to make it less costly, or other exemptions.
- In addition, there might be changes in the rules, procedures, and deadlines for filing tax returns or the payment of tax itself.
- For instance, there might be a change in the amount of penalty for missing the deadline. Those proposed changes would typically need to be brought in via amending the Income Tax Act.
- Among other changes, the FM may propose in the Union Budget with regard to the rates or processes for payment or administration of stamp duty levied on various instruments.
- Such a change would need to be brought in via an amendment to the Stamp Act.
- Since the introduction of GST, there is no amendment to indirect taxes in the Union Budget, since that is under the purview of the GST Council.