In a small relief to the mutual fund industry, Finance Minister Arun Jaitley today announced that the increased tax rate of 20 per cent on debt MFs will not apply on units sold between April 1 and July 10.
Units of the debt-oriented MFs sold after July 10 will, however, attract 20 per cent capital gains tax as against 10 per cent earlier.
"I propose to move a government amendment today in the Finance Bill itself that the new tax regime will not be applicable to transaction of sale of units (of debt MFs) which have taken between April 1 and July 10 this year," the Minister said.
Replying to a discussion on the Finance Bill in the Lok Sabha, Jaitley said that he had decided to end concessional rate of taxation of 10 per cent on debt mutual funds in his budget as it was being mostly used by corproates for "abritrage".
During the debate, a number of members had raised the issue of new tax regime on MFs saying that on one hand the government was opposed to retrospective taxation and on the other hand it imposed it on debt mutual funds. The Finance Bill was later passed by Lok Sabha, completing the budgetary exercise in the lower house.
In his budget proposals, unveiled on July 10, Jaitley had proposed raising long-term capital gains tax on debt-oriented mutual funds to 20 per cent from 10 per cent, to bring parity with banks and other debt instruments.
He also proposed increasing the period of holding in respect of long-term debt funds units from 12 months to 36 months. The mutual fund industry said the concession will provide only a "marginal relief and will not be of much help to the sector.