Pre-Budget debt MF deals may be treated under earlier rule

The finance ministry might consider 'grandfathering' of debt mutual fund transactions done before the Union Budget, to avoid payment with retrospective effect.

Grandfathering is the application of old rules to existing cases, while bringing future cases under new law. In the Budget, the capital gains tax on long-term debt MFs was doubled to 20 per cent and the long term defined as three years instead of one year till now.

It is not clear whether the ministry would apply the old provisions to all investments before the Budget or only on redemption.

"The tax on debt funds is retroactive and not retrospective, as it comes into effect from assessment year 2015-16. But since it will apply to income accruing this year, we will see if some grandfathering is required," said a ministry official, without elaborating.

The issue was also raised by industry members at a post-Budget session here with the Confederation of Indian Industry. Finance ministry officials assured there would not be retrospective taxation.

On the confusion regarding tax benefits for wind energy, Sunil Gupta, joint secretary in the Central Board for Direct Taxes, said one should go by the English version of the Budget speech. The Hindi version said the benefits of accelerated depreciation had been restored; there was no such mention in the English speech.

Revenue Secretary Shaktikanta Das, present at the opening session, said the Budget had thrown open tremendous opportunities for growth and development.

He said the government was yet to decide on implementing General Anti Avoidance Rules on taxes from next April. He said it would look into the concerns in this regard.

On the issue of a Goods & Services Tax, he said the government was committed to usher in a comprehensive regime and was working to make it a reality by the end of the year.

Das said the government had reiterated a resolve to adhere to the fiscal deficit target of 4.1 per cent of gross domestic product, which would be essential for reining in the deficit at three per cent by 2016-17. He agreed the Budget target of indirect tax collections at Rs 6.24 lakh crore in the current financial year, a fifth higher than last year's revised estimates, was challenging.

He said they were confident of achieving the direct tax collection target of Rs 736,221 crore, about 15 per cent higher than the collection in 2013-14.
TAX ON DEBT MF

• FinMin official says looking at grandfathering provisions
• Provisions allow application of old rules to existing laws
• No clarity on whether old provisions will apply to existing investments
• Official says the tax is retroactive and not retrospective