Seven Mutually Beneficial Proposals?

The Kelkar committee has made the following recommendations for taxing of mutual funds.

1. The income of the mutual fund derived from short-term capital gains and interest should be taxed at a flat rate in the hands of the mutual fund.

2. Since most investors in units are generally smaller taxpayers, we recommend that the rate of tax should be the minimum marginal rate of personal income tax i.e. 20 per cent.

3. With a view to overcoming double taxation, the dividends received by unit holders should be fully exempted since the distributable surplus would have suffered the full burden of the tax.

4. The short-term capital gain arising to the investor from the sale of units of investment funds should be taxed at his level at the personal marginal rate of tax.

5. The long term capital gain arising to the investor from sale of units of mutual funds should be exempt from income tax.

6. The tax treatment of mutual funds and their investors should also be extended to venture capital funds, private equity funds and hedge funds. However, the tax rate for these funds should be 30 per cent since their investors are likely to be those in the highest tax slab.

7. All funds must necessarily obtain the PAN of the investor and the database about every payment made by the fund manager back to the investor, tagged with PAN, should be furnished to the tax authorities as a information return.

The net impact of Kelkar