One of the major confusions prevailing pertained to the tax treatment when mutual fund schemes were consolidated. This is common practice. Mutual funds tend to consolidate multiple schemes when a particular story has outlived its purpose. This created a tax point for customer. This anomaly has been rectified which is positive. At the same time, the deduction of TDS on bank interest has been made far more stringent. That will surely put retail investors through a lot of hassles.
Consolidation of Mutual Funds:
The Union Budget has announced that when a mutual fund consolidates its schemes, then there will be no incidence of capital gains or capital losses. Of course, such consolidation of schemes should be across the same category of schemes. This removes an anomaly because till date, mutual fund holders were subject to capital gains tax when schemes were consolidated as it was treated as the sale of an old scheme. This budget has removed the anomaly. The budget has also clarified that in case of such consolidation, the cost of acquisition and the holding period will be taken as the date pertaining to the consolidating scheme. That will surely come as a relief for mutual fund investors.
TDS on interest:
Tax deducted at source (TDS) on interest paid by bank FDs was another bone of contention. The limit of Rs.10,000/- at a branch level was fairly inadequate and led to unnecessary paper work. Unfortunately, the government had made the rules more stringent in this budget. Firstly, the TDS has been extended from Fixed Deposits to Recurring Deposits also. Secondly, the point of reference used to be the branch; but this budget has set the limit of Rs.10,000/- for the entire bank where the core banking solution has been implemented. Lastly, the cooperative society, which was hitherto exempted from TDS, will also now be liable to deduct TDS on time deposits. All in all, it will be quite negative for depositors and will add to the paper work involved.
While investors have reasons to be happy with a whole host of benefits, they will be surely unhappy with the new TDS rules. But within a deluge of benefits, there can’t be room for much complaint.
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