The Lok Sabha on Friday passed the Finance Bill, 2014 by voice vote giving effect to the legislative tax proposals in the Budget.
In his reply to the debate on it, Union Finance Minister Arun Jaitley clarified that the higher long term capital gains tax rate of 20 per cent on non-equity mutual funds passed as part of the Budget would come into effect from July 1o onwards instead of April 1.
The related provision to raise the holding period for unlisted shares and debt funds units to 36 months from 12 months for them to qualify as long-term capital assets will also take effect July 10 onwards. Gains arising from such investments redeemed within 36 months will now be considered short term capital assets and will attract the marginal income tax rate applicable to the investor.
The partial relief on the retrospective provision implies investors holding these mutual fund units will now have to pay long term capital gains tax at the rate of 20 percent against 10 percent applicable at the time the investments were made.
Fixed maturity plan investments
Most severely affected are those who have invested in fixed maturity plans (FMPs) of periods greater than one year but less than three years. When their redemption comes, the returns will be treated as short-term capital assets. For FMP investments to be more tax efficient than bank fixed deposits investors will have to stay invested in them for at least three years.
Investors are estimated to be holding Rs 1,43,000 crore as FMP investments at present of which 92 per cent has a term ranging between one and three years.
Also affected will be individual investors in Monthly Investment Plans and other debt-oriented hybrid funds investments in which are generally for more than three years.
Bringing back black money
In his reply to the Budget debate ahead of its passage in Lok Sabha, the Finance Minister reiterated the Government’s intent to fulfil its promise of bringing back money stowed away in foreign banks.
Mr. Jaitley also said that the NDA Government will not be a high-tax government as it intends to create more jobs, industry and give a fillip to economy. A low tax regime will allow India to emulate the Chinese market where low taxation has helped increase manufacturing, he said.
“Ours is not high tax government. Consumers want to buy goods not taxes and if you load every product with high taxes, your products will become less competitive,” he said.
The changes proposed in the Finance Bill, said Mr. Jaitley, help raise the revenue to meet the fiscal deficit targets.
Referring to the suggestion made by Congress MP, Jyotiraditya Scindia and a few others, he said the high tax rate of 20 per cent on the debt mutual fund will be applicable from July 10, instead of April 1, 2014 as was proposed earlier and it will also not amount to retrospective taxation.
Referring to the huge sums of money being cited as “foregone” taxes, he said the money is rebate that is offered to senior citizens and under section 80(c), not tax that has not been collected. The Minister told the House that a proposal to make filing of returns less punitive is also on the cards. “To allow relief to the tax payers filing returns late and paying penalty on daily basis, the CBDT will be empowered to exercise discretion in this regard,” he said.
On the eve of the 15th anniversary of the Kargil war, Mr. Jaitley who is also the Defence Minister said the government’s decision to provide an additional Rs. 5,000 crore for defence provisions shows its commitment towards the sector. This is in addition to the allocated monies in the interim budget of the UPA government. He said the government is working on formula to implement one-rank-one-pension for defence forces.
Referring to the Settlement Commission, the Minister said it will take up cases where proceedings have been initiated for reassessment and proceedings which are pending for fresh assessment in pursuance of an order of a tribunal or a commissioner for setting aside or cancelling the assessment itself.
Referring to the GAAR, the Minister said he will take a final call on contentious issue at a later date and said to revive investor
sentiment which had been damaged by retrospective amendment to the Income Tax, he said, the government in principle will not bring any such legislation which will create fresh liability.
He said a law on GST will also be framed by the end of the year.
