Union Budget 2016:

(i) Sovereign Gold Bond Scheme, 2015

The Government of India has introduced the Sovereign Gold Bond Scheme with the aim of reducing the demand for physical gold so as to reduce the outflow of foreign exchange on account of import of gold. The Gold Bond is a mode for substitution of physical gold and also provides security to the individual investor who invests in Gold for meeting their social obligation.

Accordingly, with a view to providing parity in tax treatment between physical gold and Sovereign Gold Bond, it is proposed to amend Section 47 of the Income-tax Act, so as to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual shall not be treated as transfer and therefore shall be exempt from tax on capital gains.

It is also proposed to amend section 48 of the Income-tax Act, so as to provide indexation benefits to long terms capital gains arising on transfer of Sovereign Gold Bond to all cases of assessees.

This amendment is proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 201 7-18 and subsequent assessment years.

Clause 28 of Finance Bill 2016

Clause 28 of the Bill seeks to amend section 47 of the Income-tax Act relating to transactions not regarded as transfer.

Sub-clause (A) of said clause seeks to insert a new clause (viic) in the said section so as to provide that any redemption of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by an assessee being an individual shall not be considered as transfer.

Sub-clause (B) of the said clause seeks to insert a new clause (ea) in clause (xiiib) of the said section so as to provide a condition in addition to the existing conditions, that the value of the total assets in books of accounts of the company in any of the three previous years preceding the previous year in which its conversion into Limited Liability Partnership takes place does not exceed five crore rupees.

Sub-clause (C) of the said clause seeks to insert a new clause (xix) in the said section so as to provide that any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the mutual fund shall not be considered as transfer for capital gain tax purposes.

It is also proposed to define the expressions “consolidating plan”, “consolidated plan” and “mutual fund” for the purposes of the proposed clause (xix).

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017- 2018 and subsequent assessment years.

Clause 29 of Finance Bill 2016

Clause 29 of the Bill seeks to amend section 48 of the Income-tax Act relating to mode of computation.

The aforesaid section, inter alia, provides that indexation benefit in respect of long-term capital gains as per third proviso is not available to bonds and debentures, except capital indexed bonds issued by the Government. Sovereign Gold Bond issued under the Sovereign Gold Bond Scheme, 2015, is therefore, presently, not eligible for indexation benefits. Further, it provides that the gains on account of appreciation of rupee against a foreign currency are accounted for while calculating full value of consideration.

It is proposed to amend section 48 so as to provide indexation benefits to long-term capital gains arising on transfer of the said Sovereign Gold Bond.

It is further proposed to provide that in case of an assessee being a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him, shall be ignored for the purpose of computation of full value of consideration under the said section.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to assessment year 2017-2018 and subsequent years.

(ii) Rupee Denominated Bond

The Reserve Bank of India has recently permitted Indian corporates to issue rupee denominated bonds outside India as a measure to enable the Indian corporates to raise funds from outside India.

Accordingly, with a view to provide relief to non-resident investor who bears the risk of currency fluctuation, it is proposed to amend section 48 of the Act so as to provide that the capital gains, arising in case of appreciation of rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made shall be exempt from tax on capital gains.

This amendment is proposed to be made effective from the 1st day of April, 2017 and shall accordingly apply in relation to assessment year 201 7-18 and subsequent assessment years.

Clause 29 of Finance Bill 2016

Clause 29 of the Bill seeks to amend section 48 of the Income-tax Act relating to mode of computation.

The aforesaid section, inter alia, provides that indexation benefit in respect of long-term capital gains as per third proviso is not available to bonds and debentures, except capital indexed bonds issued by the Government. Sovereign Gold Bond issued under the Sovereign Gold Bond Scheme, 2015, is therefore, presently, not eligible for indexation benefits. Further, it provides that the gains on account of appreciation of rupee against a foreign currency are accounted for while calculating full value of consideration.

It is proposed to amend section 48 so as to provide indexation benefits to long-term capital gains arising on transfer of the said Sovereign Gold Bond.

It is further proposed to provide that in case of an assessee being a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company subscribed by him, shall be ignored for the purpose of computation of full value of consideration under the said section.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to assessment year 2017-2018 and subsequent years.

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