Finance minister Arun Jaitley on Friday iterated the Modi government’s promise to keep tax rates low and ruled out any new retrospective taxes when he replied to the debate on the Finance Bill, 2014, in the Lok Sabha, which passed it later.
Stating that the government will not interfere with the judicial proceedings regarding tax notices issued with respect to indirect transfer of Indian assets under the 2012 retrospective changes to the Income Tax Act, Jaitley removed an irritant by making the higher long-term capital gains tax rate on debt mutual funds proposed in his Budget strictly prospective.
The minister had in his maiden Budget announced a new committee under the Central Board of Direct Taxes to look into each fresh case that may be found by field-level tax officers on taxation of indirect transfers to decide whether it needed to be pursued. Showing his displeasure with retrospective taxes introduced by the previous UPA regime and intent to relent on this to the extent legally possible, the finance minister had said in the Rajya Sabha on Thursday that this was a a difficult knot to untie.
The minister, who said he did not have time to review the position on the dreaded General Anti-Avoidance Rules (GAAR) during the Budget-making exercise, said he would apply his mind on it now. GAAR provisions are feared by investors given the additional powers it would give the taxman to influence their tax planning by lifting the corporate veil.
Under industry pressure, the UPA had deferred GAAR’s implementation to April 1, 2015.
The Rajya Sabha will consider the Finance Bill for passage on Wednesday.
As per the amended Finance Bill passed in the Lower House, capital gains on debt mutual fund investments held for a year and redeemed between April 1 and July 10 this fiscal would be taxed only at the earlier long-term capital gains tax rate of 10%.
Jaitley had originally proposed to increase the holding requirement for long-term assets to 36 months and tax them at 20% from April 1 onwards, which unnerved many investors.
Mutual fund industry players described the relief as partial as the revised rate will be applicable for investments redeemed after July 10.
As per the amended Bill, only debt mutual fund investments redeemed after July 10 would be denied the option to pay tax at a lower rate of 10% if indexation benefit (accounting for inflation in the capital gain made) is not availed of. “The finance ministry should now work with Sebi to make amendments to fixed maturity plans (FMP) regulations and allow these to become open-ended, else investors in FMP will unfairly be taxed on short-term basis though when they invested the rules were different,” said Sudhir Kapadia, national tax continued…