Investors in equity shares, mutual fund units may get a new tax deal

KR Srivats New Delhi | Updated on March 13, 2018

Tax breaks on R&D expenses proposed to be scaled down

The latest iteration of Direct Taxes Code Bill 2013 has been a mixed bag with some dampener for industry on R&D front and also some positive surprises on taxation of equity shares and equity oriented mutual funds.

While equity shares held for more than 12 months would be considered as long-term investments and exempt from tax, the method of calculation of 12-month period has undergone a change.

Now, the 12-month period is to be reckoned from the end of the financial year in which it is acquired and not from the date of acquisition, Aseem Chawla, Partner, MPC Legal, a law firm told Business Line.

The Direct Tax Code proposes to levy 10 per cent additional tax on resident recipient if the total dividend in his hands exceeds ₹1 crore.

The Code has rejected the recommendation of the Standing Committee to do away with the Securities Transaction Tax, in order to regulate day trading.

In respect of investment assets being equity shares in a company or a unit of equity-oriented fund which are short-term in nature — that is to say their period of holding is 12 months or less than 12 months — a deduction amounting to 50 per cent of the income so arrived shall be allowed for computation of short term capital gain.

Currently, no deduction is available for computation of short term capital gains. Other investment assets (not including equity share or equity oriented fund) will be considered as long term when they are transferred at any time after one year from the end of the financial year in which they are acquired by the assessee.


NC Hegde Partner, Deloitte Haskins & Sells, pointed out that the DTC Bill proposes to scale down the R&D benefits.

The new Code now provides for a reduced weighted deduction of 150 per cent for in-house scientific research. Similarly donations to specified institutions will qualify only for a deduction of 125 per cent. This will be a major setback for corporates who had all geared up to set up R&D facilities given the attractive deductions,” he said.

Indirect transfer

Vipul Jhaveri, Partner, Deloitte, Haskins & Sells, said the provisions pertaining to indirect transfer of assets are largely in line with the provisions under current tax law.

However, under proposed draft DTC 2013, the Government has provided further clarity on the meaning of term “substantially” by suggesting a threshold of 20 per cent of the global assets (against 50 per cent threshold as existing in the earlier draft) which is a disappointment for investors.

Further, exemption is also provided for transfer of small share holdings (up to 5 per cent) outside India.

Published on April 02, 2014

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