Budget 2019: Concessional rate of Short-term Capital Gains (STCG) tax to certain equity-oriented fund of funds

In order to incentivise fund of funds set up for disinvestment of Central Public Sector Enterprises (CPSEs), Finance Act, 2018 has provided concessional rate of long-term capital gains tax under section 112A of the Act for the transfer of units of such fund of funds.

In order to further incentivise these funds of funds, it is proposed to amend section 111A so as to extend the concessional rate of tax for short-term capital gains in respect of transfer of units of such fund of funds.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-21 and subsequent assessment years.  [Clause 32]

Extract of Clause 32 of Finance Bill 2019

32. Amendment of section 111A.

In section 111A of the Income-tax Act, in the Explanation, in clause (a), for the words, brackets and figures “the Explanation to clause (38) of section 10”, the words, brackets, letters and figures “clause (a) of the Explanation to section 112A” shall be substituted with effect from the 1st day of April, 2020.

Note on Clause 32 of Finance Bill 2019

Clause 32 of the Bill seeks to amend section 111A of the Income-tax Act relating to tax on short-term capital gains in certain cases.

Clause (a) of the Explanation to the said section provides that the “equity oriented fund” shall have the meaning assigned to it in the Explanation to clause (38) of section 10.

It is proposed to amend the said Explanation so as to provide that “equity oriented fund” shall have the meaning assigned to it in clause (a) of the Explanation to section 112A.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-2021 and subsequent assessment years.

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