Partial tax relief to debt MFs Breather For Funds Sold Between April 1 And July 10 Bringing partial relief to the mutual fund industry which was facing redemptions worth about Rs 1.8 lakh crore after a vital change in tax rate in the Budget, finance minister Arun Jaitley on Friday announced that the increased tax rate of 20% on debt mutual funds (MFs) will not apply on units sold between April 1 and July 10, 2014. The FM said that the units of the debt-oriented MFs sold after July 10 will, however, attract 20% capital gains tax as against 10% earlier. “I propose to move a government amendment today in the Finance Bill itself that the new tax regime will not be applicable to transaction of sale of units (of debt MFs) which have taken between April 1 and July 10 this year,“ the FM said. Replying to a discussion on the Finance Bill in the Lok Sabha, Jaitley said that he had decided to end concessional rate of taxation of 10% on debt mutual funds in his Budget as it was being mostly used by corporates for “arbitrage“. During the debate, a number of members had raised the issue of new tax regime on MFs saying that on one hand the government was opposed to retrospective taxation and on the other hand it imposed it on debt mutual funds. The Finance Bill was later passed by Lok Sabha, completing the budgetary exercise in the lower house. In his budget proposals, unveiled on July 10, Jaitley had proposed raising long-term capital gains tax on debt-oriented mutual funds to 20% from 10%, to bring parity with banks and other debt instruments. He also proposed increasing the period of holding in respect of long term debt funds units from 12 months to 36 months. The mutual fund industry said the concession will provide only a “marginal relief “ and will not be of much help to the sector. Fund industry officials said that a better option would have been have a differential rate for corporate and non-corporate investors since the main reason for brining about the change in the taxation regime was the tax arbitrage enjoyed by the corporates. “The change in tax regime will now drive away even the retail investors from (MF) products like FMPs (fixed maturity plans), which are very popular among retail investors too,“ said a top official at a domestic fund house. MF industry officials now feel that with the change in the definition of short-term capital gains from 12 months earlier to 36 months, there will not be many takers for three-year FMPs as the money will be locked in for that long without much scope for exit in case of requirement for liquidity .
Posted on: Sat, 26 Jul 2014 11:12:09 +0000
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