CA Sanjeev Singhal
The Lok Sabha on Thursday, the 24th of July, 2014 approved of certain changes made in the Finance (Bill) No. 2, 2014. The Finance Bill as approved by the Lok Sabha has clarified certain doubts on the taxability of unlisted shares and units of Mutual Funds during the transition period between April 1, 2014 and July 10, 2014 and has introduced new provisions to give effect to the statement given by the Hon’ble Finance Minister on the floor of the house. Mr. Arun Jaitley in his budget speech given on July 10, 2014 in the Parliament had said as under:
“I propose to enable resident taxpayers to obtain an advance ruling in respect of their income tax liability above a defined threshold. I also propose to strengthen the Authority for Advance Rulings by constituting additional benches. I further propose to enlarge the scope of the Income-tax Settlement Commission so that taxpayers may approach the Commission for settlement of disputes.”
The list of changes made in the Finance Bill are as under:
1) Unlisted securities and units of MF transferred between 01-04-14 and 10-07-14 shall be deemed to be long-term capital assets, if held for more than 12 months.
2) Long-term Capital Gains on Units of Mutual Funds transferred between 01-04-14 and 10-07-14 shall be taxable at 10% without indexation.
3) A third proviso has been inserted in Section 92C to provide that where more than one price is determined by the most appropriate method, the arm’s length price shall be computed in such manner as may be prescribed. Accordingly, the provisions of first and second proviso (arithmetic mean and tolerable range) shall not apply.
4) Taxpayers can approach Settlement Commission even for pending re-assessment cases.
5) Resident taxpayers can approach Authority for Advance Ruling.
6) Changes are aimed at strengthening Authority for Advance Ruling.
Author Bio
It is in a way a retrospective effect. The rule should have been for investments made from this day, to ensure it is not retrospective in effect.
I think that it’s a good step taken by the Hon’ble Finance Minister to nullify the restropective effect of the new provisions inserted by New finance Act. Generally Its beneficial to All taxpayers.
Mr Sanjay Kumar Mittal, Please elaborate as how tax evasion has to this discussion? Everybody tries to reduce the tax burden, Actions in this direction cannot be construed as tax evasion by any stretch of imagination.
Tax laws should respect the rules that prevails at the time of making the investment. Present action is a retrospective in a way, which was avoidable.
Fair treatment of the tax paying citizen requires that only prospective taxation is allowed. As opposed to this, in case of foreign investors retrospective tax may still be required since money can enter India through tax havens.
I feel that it would have been better for the finance minister to make the units issued by mutual funds on or after passing of the Budget, say from 1st August 2014 to be treated as per the new proposed changed method of taxation. This would have avoided the retrospective taxation of the units already bought under the old scheme of taxation by investors in FMP’s, for example.
In my opinion it is a good step to treat certain mutural Fund instruments as short term upto 3 years, as it had become an instrument of tax evasion.
It would have been better for the Finance Minister to drop the provision to treat certain Mutural Fund isntruments as short term upto 3 years. However he is fair to those who disposed off the units without knowing what is in store.
In a way this is a retrospective provision as those people who had invested previously are being treated with the new rules.
The correct/fair/best thing for this or for any instrument is to give effect only for future investments, i.e. those who invest in those intruments from that day onwards.