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Jaitley Clarifies: No Retro Tax on Bond Funds

Only redemptions made till the day of the budget will escape the new tax regime

According to reports, the Finance Minister has made a statement that clarifies the issue of the new tax regimes for non-equity funds. According to reports, he has said that fund units redeemed till July 10 will not be subject to the new tax regime. As such, the tax is no longer applicable on a retrospective basis.

Unfortunately, the government has done only the bare minimum it should have. While Arun Jaitley has kept his word that no retrospective tax would be imposed, this still leaves existing investments trapped in a higher tax regime which the investors had not anticipated at the time of making the investments.

Moreover, in his speech, the minister had said that the reason for imposing this tax was the arbitrage that investors enjoyed over bank products. This is what he had said: “In the case of Mutual Funds, other than equity oriented funds, the capital gains arising on transfer of units held for more than a year is taxed at a concessional rate of 10% whereas direct investments in banks and other debt instruments attract a higher rate of tax. This allows tax arbitrage opportunity."

However, in the shape that it has been implemented, the new tax regime also affects equity fund-of-funds and international equity funds. These products can hardly be said to be competing with bank deposits.

For more on the issue, read our earlier stories:
Bond Fund Tax Hike to Impact FMP Investors
No Retrospective Tax on Bond Fund Investment
Budget Hits Mutual Fund Investors With Ill-Thought Out Tax