We have taken the matter on capital gains tax treatment with the government and hopefully it will be sorted out. We have already made our representation and will soon meet the officials in the finance ministry. Meanwhile, we are awaiting clarification on the date from which the tax would be applicable, whether its April 1, 2014, or July 10, 2014, Amfi CEO Hoshang N Sinor told FE on phone.
Last week, finance minister Arun Jaitley had proposed to raise short- and long-term capital gains tax by 10 percentage points to 30% and 20%, respectively. Jaitley had also proposed to increase the holding period of debt-linked mutual fund schemes to 36 months from 12 months earlier for it to qualify for long-term capital assets.
Sources said Amfi had also written a letter to Securities and Exchange Board of India (Sebi), seeking its intervention in the matter. Amfi has also sought a uniform tax treatment for debt mutual fund and listed corporate as well as zero-coupon bond. Legal and industry experts belive the proposed retrospective amendment along with the impact of dividend distribution tax, which diminishes return on long-term investments, may significantly impact lot of small investors dealing in mutual funds.
The real issue is not securities bought before April 1, 2014, and sold after July 10, 2014, because the taxable event is the sale of securities which will happen after July 10, 2014. The real issue is securities bought and sold before July 1, 2014, (both the events taking place before the amendments are announced). The suitable suggestions to eliminate any issue of retrospective amendment are either postpone this till the next financial year or apply the new law for mutual funds units redeemed after July 10, 2014, said Lalit Kumar, partner, J Sagar Associates (JSA).
While the exact number could not be ascertained, experts estimated a blow of R1.2-1.3 lakh crore in terms of outflows as a result of the Budget proposals. About 70-80% of the total industry assets under management (AUMs) is in debt-linked schemes, they said. Mutual funds manage over R7 lakh crore under liquid and debt schemes invested in corporate debt securities and money market instruments through more than 67 lakh folios from retail investors in these segments, official data show.
As per the norms, any fund investing less than 65% of its corpus in equities is considered a debt fund for taxation. The finance minister had proposed to increase the rate of tax on long-term capital gains from 10% to 20% on transfer of units of debt funds with a view to parity with banks and other debt instruments, and remove the tax arbitrage.