Source Business standard
| Higher tax may not apply to debt funds redeemed before Budget |
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New Delhi, 12 July The finance ministry on Saturday sought to allay the concerns of investors and industry over some of the Budget proposals like higher long- term capital gains tax on debt mutual funds and application of the general anti- avoidance rules ( GAAR) from April 1, 2015. Revenue Secretary Shaktikanta Das on Saturday suggested investors in debt mutual funds might not have to pay taxes retrospectively for units redeemed before this year's Budget was presented. The Finance Bill 2014 has doubled the tax on debt mutual funds to 20 per cent. There was confusion over whether it would be applied to this year's income. "The effective date is assessment year 2015- 16, that is income accruing during 201415. But let me clarify the intention is not to introduce any kind of retrospectivity," Das said at a post- Budget meeting organised by the Federation of Indian Chambers of Commerce and Industry ( Ficci). Industry argues Finance Minister Arun Jaitley's first Budget taxes in retrospect, despite an assurance to the contrary. Estimates of the retrospective tax on mutual funds add ₹ 10,000- 15,000 crore on redemptions in April- May. "We will stand by the finance minister's statement that no decision will be taken retrospectively. The Central Board of Direct Taxes ( CBDT) will issue the necessary clarification," Das said, adding the ₹ 15,000crore projection was an overestimation. Das also said the government would soon decide whether GAAR — to be imposed on firms claiming tax benefit of over ₹ 3 crore and designed to curb tax avoidance through offshore havens — should be introduced from its scheduled date of April 1, 2015. Minister of State for Finance Nirmala Sitharaman had on Friday only put forth the factual position in Parliament, he pointed out. "GAAR is to come into effect from April 1next year. The new government has not looked at the whole matter. It will examine and take a view. This will happen shortly. We are still eight months away from the deadline," Das told reporters. The Budget was growth- oriented, with several proposals to boost manufacturing, Economic Affairs Secretary Arvind Mayaram said at the Ficci meeting. He added the fiscal deficit target of 4.1 per cent of gross domestic product ( GDP) would be met. " There are uncertainties, especially in the global situation. But as of now we are confident we will be able to manage it," he said. The government is looking at 5.4- 5.9 per cent GDP growth this year. India's growth slipped to below five per cent in the past two years, while the fiscal deficit was contained at 4.5 per cent in 2013- 14. Defending the Budget numbers, Mayaram said the government had unearthed ₹ 12,000 crore locked up in small government funds and put them in the Consolidated Fund of India. Department of Financial Services Secretary GS Sandhu said the government was examining mergers of public- sector banks and there would be some movement this year. He also said there was a proposal for an asset- reconstruction company where banks and power companies could come together to revive incomplete projects. The National Highways Authority of India had a similar proposal for the road sector, he added. " These projects can be completed, they can be put to commercial use and money can start flowing. That is another thing that we are looking at." COMPANIES 5 > Back- dated CBDT could clarify on this; revenue secretary says govt has not yet decided on GAAR implementation from Apr 1 >Income- tax Amendment has been proposed to include newly- created I- T authorities like the principal chief commissioner, principal commissioner, principal director general and principal director (Takes effect from June 1, 2013) >Retail price The Pan Masala Packing Machines, 2008, rules are being amended to provide that, where a firm makes pouches of different retail selling prices on a single machine, the excise duty liability for that month should be the duty applicable to the highest of the RSP so manufactured (Takes effect from April 13, 2010) >Duty on petro products Full exemption from central excise is being provided to LPG, liquefied propane and butane mixture for supply to non- domestic exempted category customers ( Takes effect from February 8, 2013, to treat nondomestic exempted category on par with domestic customers) >Suuti Since some tasks of the Special Undertaking of Unit Trust of India ( Suuti) are pending closure, an amendment has been proposed to extend the exemption from any tax for five years (Takes effect from April 1, 2014) 'Retrospective', after all, maynotbe a bad word for the Narendra Modi govt. Though the govthad shown some resistance after taking charge, Union Budget2014- 15 has quite a fewback- dated taxation and exemption provisions. A snapshot: THE RETRO WORD |
Source Business Line
Unlisted shares' tax treatment proposal could affect investors of private cos
K. R. SRIVATS
NEW DELHI, JULY 12:
India proposes to redefine the capital gains tax treatment of unlisted shares, bringing in a distinction with the treatment on listed shares.
This move — having a distinct capital gains tax treatment for unlisted shares — could affect investors and shareholders of private companies and possibly hinder private equity activity in India, say tax experts.
Budget 2014-15 proposes to provide that an unlisted share will be considered as "short term capital asset" if held for not more than 36 months.
This is in sharp contrast to the existing position in income tax law that an unlisted share held for 'not more than 12 months' is considered as 'short term capital asset'.
The proposed change in the holding period norm for unlisted shares to qualify as 'short term capital asset' could put investors in a bind in terms of post-tax returns, say tax experts.
"The proposal to increase the holding period for unlisted shares to qualify as short term capital asset to 36 months from 12 months is regressive and may have unintended consequences.
This is because short term capital gains are subject to tax at normal rate of 30 per cent", said Aseem Chawla, Partner, MPC Legal, a law firm.
Seemingly, the intention (of the Government) was to amend the capital gains tax treatment of debt oriented mutual funds.
However, the amendment encapsulates unlisted shares also, Chawla said, adding that this will impact shareholders and investors of private companies.
Dinesh Kanabar, Deputy CEO of KPMG in India, said that India had always held shares whether listed or unlisted on par (as regards tax treatment).
"There is no need to distinguish because it is a method of funding. Listing does not give you any advantage or disadvantage and therefore this new proposition that unlisted shares have to be held for three years is not warranted", Kanabar told BusinessLine here.
The proposed change of law to say that short term capital gains will arise in respect of transfer of unlisted shares if they are not held for three years needs to be reviewed, Kanabar said.
The proposal could affect private equity activity as such investments are usually long-term. "But there are times when people need to exit. Having not that opportunity is a problem", Kanabar said.
Former CA Institute Secretary Ashok Haldia said that investors normally do not feel comfortable with a three year holding period. "They would like to keep their options open".
Also, those entrepreneurs looking for short term capital arrangements through buy-back mode will find it difficult to get investors, Haldia said.
An important fallout of the latest proposal could be that foreign private equity investors pumping money into India could start looking at post-tax returns.
They could look at returns that offset the loss of revenues due to higher tax burden.
But domestic lending institutions may cheer the proposed amendment as it would increase their comfort over the investors staying invested with the enterprise for a longer term.
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SEBI gears up to notify final guidelines for REITs
MANISHA JHA
MUMBAI, JULY 11:
A long standing demand of the real estate industry and a third attempt by the market regulator SEBI to revive the Real Estate Investment Trust regime in India finally received a shot in the arm with the Government providing for a tax pass through status for REITs in the Budget proposals announced on Thursday
Reworked proposals
Taking a cue from the announcement, SEBI has decided to take up the reworked REIT proposals for final approval and notification at its next board meeting, paving the way for its eventual rollout.
A senior SEBI official said: "The tax pass through status was the only stumbling block in implementation of the REIT and now that it has come through, SEBI is fully geared to present the approvals in our next board meeting itself."
Under the taxation incentives proposed for REITs, interest income derived out of REITs for the unit holder would have pass through status while capital gains and dividend distribution will be taxed.
Industry experts stated that the move would help benefit developers monetise ready commercial assets, attract foreign and domestic capital and incentivise all those who are developing or investing in projects under construction by providing them an exit route through sale to REITs and help large players plan long gestation projects.
"Under the taxation regime proposed, the interest income derived by REITs to end investors would be subject to a favourable tax regime and there would also be deferment of tax on the initial transfer of property to REITs. However, income distributed to investors as dividend would continue to be subject to corporate income tax and dividend distribution tax," said Gautam Mehra, Executive Director, PwC.
"Though industry was also expecting relief on the dividend distribution tax, what has come is still a huge positive for the industry and now all eyes would be on SEBI to announce the reworked REIT guidelines," he added.
(This article was published on July 11, 2014)
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