You are here: Home » Markets ยป News
Business Standard
Web Exclusive

MFs, alternative investment funds may come under ambit of new tax norms

0.1% tax collected at source may hit funds, investors

Mutual Funds | Tax collections


States received 16.7% more funds in FY16

(MFs) and funds (AIFs) may come under the ambit of the new tax collected at source (TCS) regime, which came into effect on October 1. This could hit the funds as well as investors.

The Finance Act, 2020, has inserted a sub-section (1H) in section 206C, mandating a seller to deduct tax equal to 0.1 per cent of sale proceeds if the value of goods sold exceeds Rs 50 lakh in a financial year. The collection is to be made at the time of transaction.

Since TCS provisions apply to the sale of "goods" by a "seller" whose turnover exceeded Rs 10 crore in the preceding financial year, all MFs and AIFs may fall within its purview. In such case, MFs and AIFs selling units become sellers, whereas investors purchasing them, buyers. At the time of redemption, MFs and AIFs could be construed as buyers, while investors as sellers.

Last month, the Central Board of Direct Taxes (CBDT) issued a circular to clarify the applicability of section 206C (1H). It said the section won’t apply to transactions of securities and commodities traded through recognised stock exchanges, or cleared and settled by recognised clearing corporations.

“There is ambiguity about whether shares and securities, including units of mutual funds, could be regarded as ‘goods’, and whether and AIFs could be regarded as sellers’. The CBDT has carved out an exception for listed securities traded through stock exchanges from TCS provisions. This seems to suggest that TCS provisions could otherwise extend to the sale of shares and securities,” said Tushar Sachade, partner, PwC India.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Wed, October 21 2020. 12:54 IST