Long Term Capital Gain (LTCG) on Mutual Fund Units (other than equity oriented) to attract higher rate of tax at 20%
Existing provision:
Existing provision:
Section 112 provides for taxation of long term capital gains in case of different persons.
Sub-section (1)(d) provides for taxing LTCG in cases other than that of a Resident Individual, HUF, Domestic Company, Non Resident and Foreign Company at a lower rate of tax.
Provisio to this subsection provides that the long term capital assets being listed securities or Units or Zero Coupon Bonds shall be chargeable to tax at a rate lower of the following:
(a) 10% of LTCG without indexing the cost of acquisition;
(b) 20% of LTCG after indexing the cost of acquisition
Thus a concessional rate (10%) to tax LTCG [subject to conditions] on listed securities/ Units/ Zero Coupon Bonds is provided.
Proposed amendment:
The proposed amendment seeks to restrict the concessional rate of tax of 10% on LTCG on listed securities and on zero coupon bonds and not to extend this benefit to Units (other than equity oriented funds).
Thus LTCG on the said Units transferred will be taxable at a higher rate of 20%.
This amendment will take effect from 1st April, 2015 and will be applicable from AY 2015-16 and subsequent assessment years.
Conclusion
As mentioned by the Finance Minister in his budget speech, the capital gains arising on transfer of units [primarily debt oriented funds] held for more than a year is taxed at a concessional rate of 10% whereas direct investments in banks and other debt instruments attract a higher rate of tax. This tax differential makes investment in bank deposits a less preferred option as compared to investment in Units.
The intention behind this increase in rate of tax on LTCG for the said Units from the existing concessional rate of 10% to that of 20% is to channelize the funds to Banks for better and balanced further investments under the RBI directives.
This on one hand will be seen by the investors in debt oriented funds as a scorching provision but on the other hand will definitely give a good dose of funds to the economy as the expected substantial flow of funds to the banking channel will be used by RBI for balanced growth of the economy.
Sub-section (1)(d) provides for taxing LTCG in cases other than that of a Resident Individual, HUF, Domestic Company, Non Resident and Foreign Company at a lower rate of tax.
Provisio to this subsection provides that the long term capital assets being listed securities or Units or Zero Coupon Bonds shall be chargeable to tax at a rate lower of the following:
(a) 10% of LTCG without indexing the cost of acquisition;
(b) 20% of LTCG after indexing the cost of acquisition
Thus a concessional rate (10%) to tax LTCG [subject to conditions] on listed securities/ Units/ Zero Coupon Bonds is provided.
Proposed amendment:
The proposed amendment seeks to restrict the concessional rate of tax of 10% on LTCG on listed securities and on zero coupon bonds and not to extend this benefit to Units (other than equity oriented funds).
Thus LTCG on the said Units transferred will be taxable at a higher rate of 20%.
This amendment will take effect from 1st April, 2015 and will be applicable from AY 2015-16 and subsequent assessment years.
Conclusion
As mentioned by the Finance Minister in his budget speech, the capital gains arising on transfer of units [primarily debt oriented funds] held for more than a year is taxed at a concessional rate of 10% whereas direct investments in banks and other debt instruments attract a higher rate of tax. This tax differential makes investment in bank deposits a less preferred option as compared to investment in Units.
The intention behind this increase in rate of tax on LTCG for the said Units from the existing concessional rate of 10% to that of 20% is to channelize the funds to Banks for better and balanced further investments under the RBI directives.
This on one hand will be seen by the investors in debt oriented funds as a scorching provision but on the other hand will definitely give a good dose of funds to the economy as the expected substantial flow of funds to the banking channel will be used by RBI for balanced growth of the economy.
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