In a marginal relief for the mutual fund (MF) industry and income tax payers, finance minister Arun Jaitley on Friday said that the increased tax on debt MFs will apply from the date of Budget presentation and not the date of the new financial year.
Replying to the debate on Budget 2014-15 in the Lok Sabha, Jaitley said the proposed changes in the Finance Bill will further simplify and smoothen the tax structure and help in increasing the revenue.
He announced that the increased tax rate of 20 per cent on long-term capital gains on the debt MFs will apply from July 10, the date of the presentation of the Budget, and not from April 1, as proposed earlier.
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Tax experts welcomed the concession but called it “marginal”, which fell short of industry’s expectations.
“While the proposed amendment mitigates the higher tax burden for unit redemptions / sale in the current financial year before the Budget announcement was made, the industry participants’ demand that these provisions apply only to new investments has not been met,” said Sameer Gupta, tax leader for financial services, EY.
In the Budget, Jaitley had proposed raising long-term capital gains tax on debt-oriented mutual funds to 20 per cent from 10 per cent, to end arbitrage and bring it on par with bank deposits and other debt instruments.
The period of holding in respect of long-term debt funds units was also increased from 12 months to 36 months, leaving the MF industry up in arms against it.
Congress leader Jyotiraditya Scindia and a few other members had also said that it amounted to levying tax with retrospective effect for three months.
In addition, as a reprieve from daily penalties for assessees filing income tax returns late, the government has empowered the direct taxes board to exercise discretion in this matter.
Jaitley said, “there is a provision which has become onerous as huge penalty (is levied) per day and there are no power of waiver itself. So if somebody says it is filed after a year than per day the penalty used to become extremely exorbitant. So some discretion is given to the CBDT with regard to that penalty where cases of late filing of returns were involved. The penalty as such will remain.”
The Finance Bill, 2014, was later passed in the Lok Sabha, completing the budgetary exercise in the House. The government has also increased the scope of Settlement Commission to include cases where proceedings have already been initiated.
The commission has been given powers to take up “cases where proceedings have been initiated for reassessment and proceedings which are pending for fresh assessment in pursuance of an order of a tribunal or a commissioner for setting aside or cancelling the assessment itself”.
More benches of the Authority on Advance Ruling would be created to deal with transfer pricing disputes.
As regards the controversial general anti-avoidance rules (GAAR), the minister said that a final call on the matter will be taken in due course.