Plan to tweak capital gains tax regime for debt mutual funds, CFO News, ETCFO

The government is considering a tweak to the capital gains tax regime for debt mutual funds to offer some relief for the Bharat Bond Exchange Traded Fund.

The issue figured at a meeting held last week in the finance ministry as the government is planning to issue a fresh tranche of the Bharat ETF in the current financial year.

The matter is under examination and a final call would be taken at when the government firms up the budget, the official said. “Bharat ETF from April 1, 2023, is taxed at the slab rate like any other debt mutual funds and this could be a dampener for the investors,” the official said. The finance bill 2023 changed the tax structure for debt mutual funds. Prior to 2023, taxation of debt funds was based on the holding period. In case where the holding period for more than 36 months, capital gains was levied at 20% with indexation benefits.

For holding period of less than 36 months short-term capital gains was levied. However, after the changes introduced by the finance bill, debt mutual funds in which equity investments is less than 35%, are taxed at income tax rate applicable in your slab. The official said that there is view that a carve out be provided for Bharat Bond ETF.

“DIPAM (Department of Investment and Public Asset Management) will send a formal recommendation in this regard to the department of revenue for consideration after the government formation,” the official added.

Finance ministry officials will also meet executives from PSUs to assess their fund requirements in the current fiscal year. The Bharat Bond Exchange Traded Fund (ETF) has bonds issued by CPSEs, CPSUs, Central Public Financial Institutions (CPFIs) and other government organisations and three private companies. Launched in 2018, these institutions have issued bonds and raised debt of ₹33,400 crore since 2019, using the ETF platform.

In December 2023, the government initiated the process to appoint a consultant to advise it on managing the Bharat Bond ETF and on issuing a fresh tranche. However, changes in the taxation regime have emerged as a significant issue.

  • Published On Jun 10, 2024 at 09:32 AM IST

Join the community of 2M+ industry professionals

Subscribe to our newsletter to get latest insights & analysis.

Download ETCFO App

  • Get Realtime updates
  • Save your favourite articles

Scan to download App

Leave a Comment