Govt to raise long-term capital gains tax on debt MF to 20pc

Tags: Govt, MF, News
In a move that may come as a blow to the mutual fund industry, the government today proposed to raise long-term capital gains tax on debt-oriented mutual funds to 20 per cent from 10 per cent, to bring parity with banks and other debt instruments.

However in the Budget 2014-15, it has proposed to increase the period of holding in respect of long term debt funds units from 12 months to 36 months.

In the case of debt mutual funds, the capital gains arising on transfer of units held for more than a year is taxed at a concessional rate of 10 per cent, whereas direct investments in banks and other debt instruments attract a higher rate of tax. This allows tax arbitrage opportunity.

This arbitrage has hardly benefited retail investors as their per centage is very small among such mutual fund investors

"With a view to remove this tax arbitrage, I propose to increase the rate of tax on long term capital gains from 10 per cent to 20 per cent on transfer of units of such (mutual funds other than equity oriented funds) funds," Union Finance Minister Arun Jaitley said in his Budget speech in Parliament.

These amendments would be effective from April,1 2015 and will accordingly apply, in relation to the assessment year 2015-16 and subsequent assessment years.

Mutual funds pool together money from many investors can invest it on their behalf, in accordance with a stated set of objectives.

According to industry experts, the increase in long term capital gain tax on debt-oriented mutual funds would impact negatively and the incentives available to bring new investors towards such schemes will get compromised when compared to bank deposits.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • Banks might be bracing for intense rate war for retail loans

    While select small banks have been slashing their deposit rates by five to 10 basis points over the past few weeks for short term adjustments to avoid

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Varun Dutt

<b>Riskfactor</b>: Intertemporal choices

Intertemporal choice is the study of the relative value people ...

Parvez Imam

Why we all have blood on our hands

What does the Jammu and Kashmir flood make us think? ...

Dharmendra Khandal

The peculiar possibilities of animal poop

You can tell a lot about an animal by its ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture