In a major blow to debt fund investors, Finance Minister Nirmala Sitharaman on Friday moved an amendment to the Finance Bill, 2023, taking away the long-term capital gains taxation benefits for investments in debt mutual funds (MFs).
Simply put, gains on all investments made on or after April 1, 2023, in specified debt MFs will only be treated as short-term capital gains and will not be entitled for concessional tax rate of 20 per cent with indexation benefits, if held for over three years. This would mean that the capital gains from debt funds, international funds, fund of funds and gold funds, irrespective of their holding period, will be taxed at an individual’s relevant tax slab.
The new regime will apply on specified MFs where not more than 35 per cent of the corpus is invested in equity shares of domestic companies. This amendment is significant as the change could benefit bank deposits, which have been growing more slowly than the credit demand over the past 12 months, leading to higher funding costs for banks.
This forms a part of the 64 amendments to the Bill Sitharaman moved in Lok Sabha on Friday. Amidst the ruckus created by Opposition over their demands of forming a JPC to probe the Adani-Hindenburg issue, the Lok Sabha passed the Bill through a voice vote.
“This (amendment) will bring parity in taxation of income from investments in debt MFs and fixed deposits,” said Sonu Iyer, Partner and National Leader, People Advisory Services, EY India.
STT rate hike
The other significant amendment relates to the hike in securities transaction tax (STT) — a tax levied on every equity trades — by 25 per cent on futures and options trades put through bourses.
Additionally, the STT on sale of futures has also been increased to ₹1,250 on a turnover of ₹1 crore against an earlier levy of ₹1,000, reflecting a 25 per cent hike.
REITs and InVITs
In the Budget this year, the government had sought to tax any form of distribution made by a business trust (REITs/InVITs) which was christened as ‘repayment of debt’ and/or ‘amortisation of debt’ in the hands of investor, irrespective of whether or not the initial investment was fully recouped.
However, softening its stance, the latest amendment specifies that only the sum received in excess of the initial investment will be taxed as income from other sources. Also, the sum received will compulsorily reduce the cost base of the unit for the purpose of computing capital gains tax.
GST appellate tribunal
The amendments also pave the way for the setting up of a GST appellate tribunal (GSTAT) with one principal bench and several State benches. This is expected to help businesses resolve various disputes more efficiently. Sitharaman highlighted the setting up of GSTAT as one of the important interventions of the Centre.
The Minister also announced that the Reserve Bank of India (RBI) is being requested to bring payments for foreign tours through credit cards within the ambit of Liberalised Remittance Scheme (LRS) and accordingly, be subjected to tax collection at source. The Budget had proposed a 20 per cent TCS on payments towards foreign tours.