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Exclude pooling vehicles like Mutual funds, AIFs from the purrview of section 115BBDA

The Finance Act, 2016 had inserted a new Section 115BBDA to tax dividend income in excess of Rs. 10 lacs in case of an Individual, HUF and Firm at the rate of 10%. The Finance Act, 2017 extended the scope of section 115BBDA of the Act

Section 115BBDA – Scope of section 115BBDA, initially restricted to individuals, HuFs and Firms, expanded – Certain pooling vehicles like Mutual funds, AIFs etc. to be exempted

Issue/Justification

The Finance Act, 2016 had inserted a new Section 115BBDA to tax dividend income in excess of Rs. 10 lacs in case of an Individual, HUF and Firm at the rate of 10%. The Finance Act, 2017 extended the scope of section 115BBDA of the Act to include all categories of persons within its purview except a domestic company, a fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in section 10(23C)(iv) or section 10(23C)(v) or section 10(23C)(vi) or section 10(23C)(via), a trust or institution registered under section 12AA.

The aforesaid amendment as made in section 115BBDA of the Act only excludes certain specified persons from its purview. Therefore, by implication, all other persons are covered within the purview of Section 115BBDA of the Act. The said amendment particularly impacts some of the pooling vehicles such as Mutual funds and Alternative Investment Funds (AIFs) which represent multiple investors, to whom the income earned has to be distributed.

Pursuant to the amendment made, dividend in excess of Rs. 10 lakhs would become taxable in the hands of the aforesaid pooling vehicles even though the share of dividend income of each investor in such pooling vehicles may not exceed Rs. 10 lakhs.

Suggestion

To remove such hardship, it is requested that a suitable amendment may be brought in to exclude pooling vehicles like Mutual funds, AIFs, etc. from the purview of section 115BBDA.

Source-  ICAI Pre-Budget Memorandum–2018 (Direct Taxes and International Tax) 
Categories: Income Tax
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