Radhika Gupta posted on social media platform X and rated the Budget as 9/10. She said, “Net-net: 9/10. Focus on building and investing in India for the long term. The market will (and has) quickly moved past capital gains to focus on growth and earnings.”
Here are the three key takeaways for the mutual fund investors:
Withdrawn of 20% TDS on repurchase by mutual fund and UTI
Invest and Earn on ET Money – Get up to 9.5% p.a. returns
The Finance Minister has withdrawn the 20% TDS rate on repurchase by mutual funds and UTI. According to the Finance Bill, 2024, the Clause 55 of the Bill seeks to omit section 194F of the Income-tax Act relating to payments on account of repurchase of units by Mutual Fund or Unit Trust of India. The bill further mentioned that the said section provides that the person responsible for paying to any person any amount referred to in sub-section (2) of Section 80CCB shall, at the time of payment thereof, deduct income-tax thereon at the rate of twenty per cent (20%). It is proposed to omit the said section 194F. This amendment will take effect from October 1, 2024
“The said sub-section provides that in the case of such payment, the person responsible for making it shall, at the time of payment, deduct income tax thereon at 20% only if the amount of payment, or as the case may be, the aggregate amount of such payments, made during any previous year exceeds Rs 1 lakh. The new amendment would remove this requirement, reducing the tax burden on mutual fund investors. This announcement could be seen as a relief for mutual fund investors,” said Adhil Shetty, CEO of Bankbazaar.com
Hike in LTCG and STCG
The LTCG has been increased marginally from 10% to 12.5% and STCG has been increased from 15% to 20%. The Finance Minister mentioned that the short-term gains on specified financial assets shall henceforth attract a tax rate of 20% instead of 15%, while that on all other financial assets and non-financial assets shall continue to attract the applicable tax rate. The long term gains on all financial and non-financial assets, on the other hand, will attract a tax rate of 12.5%.
“With the marginal increase in LTCG from 10% to 12.5%, long-term investors might be paying slightly higher taxes. However, with the exemption limit raised to Rs 1.25 lakh, small investors will see modest benefits. The increase of STCG from 15% to 20% will impact short-term equity investors. Although the tax rates are marginally increased, equity mutual funds remain an attractive investment opportunity compared to other asset classes. Therefore, we do not anticipate that the change in tax rates will significantly affect the flows towards equity mutual funds,” said Feroze Azeez, Deputy CEO, Anand Rathi Wealth Limited.
Improvement in LTCG from marginal to 12.5% for gold, FoFs and international funds
The Finance Act, 2023, had introduced a special taxation regime of deemed short term capital gains taxation for Market Linked Debentures and Specified Mutual Funds by way of introduction of section 50AA of the Act. The gains in such cases were to be taxed as Short-term Capital Gain irrespective of period of holding. The requirement of investment of not more than 35% in equity shares has also impacted other funds which are not debt-oriented funds, but invest below 35% in equity shares. The funds which are adversely impacted include Exchange Traded Funds (ETFs), Gold Mutual Funds and Gold ETFs.
The definition of “Specified Mutual Fund” under clause (ii) of Explanation of section 50AA to provide that a specified mutual fund shall mean a mutual fund: a) a mutual fund by whatever name called, which invests more than sixty five per cent of its total proceeds in debt and money market instruments; or (b) a fund which invests sixty five per cent or more of its total proceeds in units of a fund referred to in sub-clause (a).
The above amendment under clause (ii) of Explanation of section 50AA is proposed to be brought into effect from 1st day of April, 2026 and shall be applicable from AY 2026-27 onwards.
“There are quite a few positives in the budget too, like taxation for gold funds and International funds which will now happen at 12.5% after a holding period of 2 years. This was happening at the tax slabs for the investors in the past. This was especially not fair for the equity fund of funds to get the same treatment as debt funds, but at least to some extent, the parity has been restored,” said Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance