FM gives Debt Mutual Fund relief says no retro tax new regime from Jul 11

Union Finance minister Arun Jaitley on Friday offered partial relief to investors by ruling out imposition of long term capital gain tax on debt mutual funds retrospectively, terming it as unproductive. Debt Mutual Funds tax changes will now be implemented from July 11, 2014 and units sold (not purchased) between April 1 and July 10 will attract the earstwhile 10 percent tax, Jaitley said while discussing the Finance Bill in Parliament. In his Budget proposals on July 10, Jaitley had raised long-term capital gains tax on debt-MFs to 20 percent from 10 percent.

The new tax measures were earlier intended to be effective from April 1, but Jaitley relented after opposition parties raised concerns over the “retrospective” nature of the tax. “The move will come as a minor relief to the fund industry but not a big one,”

Vivek Rajpal of Nomura said, adding that he does not see a great revival in the FMP segment. Debt mutual funds earlier enjoyed a tax arbitrage compared to traditional fixed-income products (where tax would be levied as per the investor’s individual income tax rate) but these products, especially shorter-term ones such as fixed maturity plans (FMPs), became a haven for corporates who would park surplus cash in such schemes, instead of opting for higher-tax bank products. The move to hike the tax rate was aimed at removing this arbitrage.

FM gives Debt Mutual Fund relief says no retro tax new regime from Jul 11

FMPs accounted for about Rs 1.5 lakh crore in assets while debt mutual funds in total accounted for about Rs 7 lakh crore out of the total Rs 10-lakh crore asset base for the fund industry.   The tax hike has put a serious doubt over the future of FMPs as a product.

Jaitley also assured investors of a stable tax regime while promising to bring in goods and services tax (GST) in this year itself. The finance minister defended tax sops given in Budget saying the revised tax exemption limits will boost savings and housing but warned that tax foregone should not be confused with tax not paid.  

He blamed near-zero growth in manufacturing sector for economic slowdown and argued that high taxes cannot boost manufacturing or create jobs.   Speaking about fighting price rise, Jaitley said raising interest rates cannot be the only solution to tackle inflation but supply side issues need to be tackled.

FM gives Debt Mutual Fund relief says no retro tax new regime from Jul 11 . Source : http://www.moneycontrol.com/