Retrospective Taxation on Debt Mutual Fund Rolled Back

Finance Bill 2014 Passed by Lok Sabha with a Major Change

In the form of additional deduction u/s 80C and home loan interest u/s 24(b), Finance Bill, 2014 gave a reason to smile to the taxpayers. But one adverse change had taken it all away that is change in the pattern of taxation of Debt Mutual Fund. It was proposed in Finance Bill, 2014 that Debt Mutual Fund holding period for categorizing it as long term capital asset shall be extend from 12 months to 36 months and it should be taxed at flat rate of 20% (concessional rate of 10% without indexation has been removed). The worst hit that this change was going to get effective from 1st April, 2014 i.e. person who sold it before the budget this year was also going to come under the purview of this change, making it the big blow to the taxpayer. The only hope to get rid of this retrospective applicability was the Lok Sabha and Rajya Sabha.

Read: Debt Mutual Fund Taxation after Budget 2014

Lok Sabha has approved the Finance Bill, 2014 with certain changes, one of which is the removal of retrospective applicability of the amended tax laws on unlisted shares and units of Mutual Fund sold during the transition period between April 1, 2014 and July 10, 2014.  The change made by Lok Sabha in Finance Bill, 2014 is as follows:

1. By inserting new provision to section 2(42A) asserting that the Units of Mutual Fund and Unlisted Securities sold between 1st April, 2014 and 10th July, 2014 shall be considered as long term capital assets, if held for more than 12 months (instead of more than 36 months).

2. Assessee has the option to pay the tax on the Units of Mutual Fund and Unlisted Securities sold between 1st April, 2014 and 10th July, 2014 u/s 112 at the lower of:

• 10% of capital gains as computed after reducing the cost of acquisition without indexation; or
• 20% of capital gains as computed after reducing the indexed cost of acquisition.

The above changes have given breather to the taxpayers who have earned capital gains in the aforesaid period.

Apart from the above change few other changes made by Lok Sabha in Finance Bill, 2014 are as follows:

[gview file=”http://www.indiantaxupdates.com/downloads/Changes-made-by-Finance-Bill-2014-by-Lok-Sabha.pdf” save=”1″]