The Finance Bill 2025 amends the definition of “capital asset” under section 2(14) of the Income-tax Act to include securities held by Investment Funds. Investment Funds, as defined under section 115UB, are funds established in India as trusts, companies, LLPs, or other bodies corporate that are registered under SEBI or IFSCA regulations. The amendment applies to securities held by these funds, as per the regulations under the Securities and Exchange Board of India Act, 1992. As a result, the transfer of these securities will now be treated as capital gains, and the income derived from the transfer will be passed through to the unit holders, who will be taxed on it instead of the investment fund. This change ensures that the income from the transfer of securities by Investment Funds is taxed as capital gains.
CA (Dr.) Suresh Surana said that “At present, the transfer pricing assessment is carried out for 1 year at a time wherein the ALP for the international transactions is determined for the year for which the matter is selected. In order to reduce the administrative burden and for ease of compliance, the Finance Bill 2025 proposes introduction of a multi-year ALP determination framework. In the proposed scenario, the ALP determined for a particular year shall apply to similar transactions for the next 2 consecutive years as well, subject to existence of certain conditions. This eliminates repetitive ALP assessments and provides a stable tax framework for businesses engaged in cross-border transactions. The taxpayers must proactively opt for the multi-year ALP determination within the prescribed timeline. Upon receipt of response from the taxpayer, the TPO must validate and approve the applicability of the multi-year ALP option within 1 month of receipt of taxpayers’ request. This scheme is applicable for international transactions as well as specified domestic transactions and the ALP determined for the base year will be automatically applied to similar transactions for the next 2 years. The details of framework are yet to be prescribed. This scheme will be applicable from Financial Year 2025-26 and onwards.”
Page Contents
- FAQs: Amendment of definition of ‘capital asset’ – Securities held by Investment Fund: Budget 2025
- Q.1 What are the changes made by Finance Bill 2025 to definition of capital asset?
- Q.2 What are Investment Funds?
- Q.3 What kinds of investment in securities are covered in the proposed amendment?
- Q.4 What would be nature of income from transfer of securities by Investment funds referred to in section 2(14) due to changes made by Finance Bill 2025?
FAQs: Amendment of definition of ‘capital asset’ – Securities held by Investment Fund: Budget 2025
Q.1 What are the changes made by Finance Bill 2025 to definition of capital asset?
Ans. The definition of capital asset in section 2(14) has been amended to include the securities that are held by the Investment funds as well.
Q.2 What are Investment Funds?
Ans. Investment Fund is defined in section 115UB of the Income-tax Act, 1961. It means fund established or incorporate in India as trust or company or LLP or body corporate that is granted certificate. The Category I or a Category II Alternative Investment Funds are regulated under the SEBI (AIF) Regulations, 2012, or under the IFSCA (Fund Management) Regulations, 2022.
Q.3 What kinds of investment in securities are covered in the proposed amendment?
Ans. The investment in securities that are made in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992) and are held by the investment fund.
Q.4 What would be nature of income from transfer of securities by Investment funds referred to in section 2(14) due to changes made by Finance Bill 2025?
Ans. As a consequence of the amendment bringing securities held by investment fund as a capital asset, the transfer of such securities shall be taxed as capital gains. Consequently, the income shall be a pass-through to be taxed in the hands of unit holder and not the investment fund. The income will be treated as capital gains.
