 "No retrospective tax on debt mutual funds")
“I have reconsidered it and proposed to move an amendment in the Finance Bill that the new tax regime will not be applicable to transactions of sale of units between April 1 and July 10 this year. If you have sold during this period, this (higher tax) will not apply,” Jaitley said in reply to a debate on the Finance Bill, 2014 in the Lok Sabha.
He also moved amendments to carry out proposals of the Budget to make changes in transfer pricing to reduce tax disputes. The House later passed the Finance Bill, 2014 with these amendments as well as other changes. With this, the Budget exercise got over in the Lok Sabha. Now, the Rajya Sabha is to return the Bill to the lower House.
Jaitely chose to extend the benefit of exemption to redemptions made during April 1 to July 10, but not investments. Mutual fund officials half-heartedly welcomed the move. Exact figures on maturities or redemptions between April 1 and July 10 are not available, but ballpark industry estimates are that around Rs 30,000 crore worth of investments in mutual fund debt schemes mature or get rolled over during a quarter.
Niranjan Risbood, director (fund research) at Morningstar India, said, “This announcement clears some air on retrospective taxation on MFs. However, investors who have invested in the past one year could still suffer in case they want to exit their investments during this year.”
Jaitley, however, defended the Budget proposal to impose higher capital gains tax, saying the facility was primarily given to encourage retail investors, but was used by companies for arbitrage.
A senior official at a large fund house, said, “The government could have limited the higher taxes to corporates and given the benefit to retail investors.”
To reduce disputes on transfer pricing, Jaitley moved amendments to carry out his Budget proposals. These relate to using multiple-year data for transfer pricing regulations instead of just the one year at present. Companies have long been demanding this because prices or margins in a particular year may be affected due to various factors that can have repercussions on transfer pricing conditions.
The amendments relate to the introduction of the concept of a range for determination of the arm’s length price. Currently, the arithmetic mean of a range of prices and margins is used to determine the arm’s length price, which has resulted in disputes in many cases. The criticism of this method is that computing of the arithmetic mean as an average of the prices and margins is distorted by extreme values and does not give a true arm’s length price.
The concept of a range, which involves a number of comparable variables, is internationally accepted. However, the Budget has said the arithmetic mean concept will continue to apply where the number of comparable variables is inadequate. The Centre Board of Direct Taxes (CBDT) will come out with safeguards and guidelines for transfer pricing for domestic transactions.
Jaitley hoped that these changes would simplify and smoothen the tax structure and help the government raise revenues to meet the fiscal deficit target for this year.
The minister also expanded the scope of the Settlement Commission to include cases where proceedings have been initiated for reassessment, known as re-opened cases. He gave some discretion to the CBDT on the penalty imposed on per-day basis for delayed filing of tax returns. However, he made it clear that the penalty as such would remain.
LISTENING TO FM
On GST
I had two sittings with states and we will try that laws are framed to introduce GST this year itself
On low tax regime
Ours is not a high tax government. If you load every product with high taxes, your products will become less competitive
On stagflation
It is too extreme to say we have reached that stage. Our growth has slowed down. But it is an over-statement to say that there is stagflation
On inflation
Can’t be tackled only through interest rates. We have to take supply-side measures. The Budget and the road map we have in mind are intended in that direction
On stock markets
(Veerappa) Moily felt the capital markets have taken the Budget proposals very badly. If that was so, the capital markets would not have reached record highs
On black money
Government is taking action on information received from France and tax haven Liechtenstein and sharing it with the Supreme Court