Budget 2016: FM extends capital gains tax on merging different schemes into MF
Currently, capital gains tax is levied when consolidating or merging multiple plans into a mutual fund (MF) plan.
However, fund houses are of the view that it is not possible to levy capital gains tax when an investor switches from a dividend option to a growth option in a plan.
“It is proposed to extend the tax exemption, available in the event of an MF merger or consolidation, to the merger or consolidation of different plans into one MF plan.
“… any transfer by a unitholder of an asset, in the form of a unit or units, held by him in the consolidation plan of a UCITS, made in return for the allocation to him of an asset , in the form of shares or unit shares, in the consolidated plan of this MF scheme will not be considered transfers for capital gains tax purposes and therefore will not be taxable,” proposed the Finance Minister Arun Jaitley in his Union budget for 2016-17.
These amendments would come into force on April 1, 2016 and will therefore apply to the 2017-2018 taxation year and subsequent taxation years.
In addition, mutual fund distributors and agents will be charged a 14% service tax.
“Services provided by the mutual fund agent/distributor to a mutual fund or asset management company are taxed as term fees effective April 1, 2016,” Jaitley said.
This will allow small sub-agents down the distribution chain to benefit from a small-scale exemption with a turnover threshold of Rs 10 lakh per annum, he added.
Distributors have long been calling for a service tax exemption.
At present, there are about 6,000 active mutual fund distributors and more than 40 asset management companies (AMC), which together manage assets worth Rs 12.74 lakh crore.
Commenting on the proposal, richnessforce.com founder Siddhant Jain said, “Budget 2016 turned out to be a positive budget, especially for the average retail investor. The Minister of Finance has bolstered confidence in government policy and prospects by not changing long-term capital. Earnings on stock mutual funds.
“Now is a good time for the retail investor to increase their SIPs as we are both at a relatively lower base and looking at potential growth in the coming fiscal year.”
Mutual funds pool the money of many investors and invest it on their behalf, according to a set of stated objectives.