Certain common provisions for equity oriented funds and other than equity oreinted funds
1. FPI:
By virtue of CBDT Notification no. S.O.199 (E) dated 22nd January 2014, the tax provisions as applicable to FIIs will also be applicable to Foreign Portfolio Investors (FPI) [which includes Qualified Foreign Institutional Investors (QFIs)]. By SEBI Circular no. IMD/FIIC/6/2014 dated March 28, 2014, SEBI has provided that the FPI regime shall commence w.e.f. June 01, 2014. SEBI has also issued operational guidelines for Designated Depository Participants (DDPs) as per which the SEBI approved DDPs would grant registration to FPIs on behalf of SEBI and also carry out other allied activities including tax deduction/withholding in compliance under the FPI Regulations. FPIs are also advised to consult their DDPs on the taxation including TDS aspects.
2. Surcharge, Education Cess and secondary & higher education cess:
The tax/TDS is to increased by applicable surcharge. Further an education cess @ 2% and secondary & higher education cess @1% is to be charged on amount of tax and surcharge.
Finance Act 2013:
Surcharge - TDS on income of units : Changes due to Finance Act 2013As per the Finance Act 2013 (Part II of the First Schedule), surcharge on the amount of income-tax deducted (TDS) for non resident investors, w.e.f. 01st April 2013, is as under:
(i) in the case of every person being a non resident (other than foreign company), shall be ten per cent of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees (there was no surcharge earlier);
(ii) in the case of every company other than a domestic company (foreign company), shall be:
(a) two per cent of income-tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees, and
(b) five per cent of income-tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten crore rupees.
The TDS rates mentioned above are subject to the DTAA (Double Taxation Avoidance Agreement) provisions.
3. Double Taxation Avoidance Agreement (DTAA) and General Anti Avoidance Rules (GAAR)
As per CBDT Circular No. 728 dated October 30, 1995, in the case of remittance to a country with which a DTAA is in force, the tax is to be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA, whichever is more beneficial to the assessee.
As per the Finance Act 2013:
(i) in the case of every person being a non resident (other than foreign company), shall be ten per cent of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees (there was no surcharge earlier);
(ii) in the case of every company other than a domestic company (foreign company), shall be:
(a) two per cent of income-tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees, and
(b) five per cent of income-tax where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten crore rupees.
The TDS rates mentioned above are subject to the DTAA (Double Taxation Avoidance Agreement) provisions.
a) submission of Tax Residency Certificate, containing such particulars as may be prescribed, is a prerequisite but not sufficient condition for availing the benefits of the DTAA. The assessee shall also provide prescribed documents and information for claiming benefits under DTAA,
b) the benefits of double taxation relief under Chapter IX (containing DTAA provisions) shall be subject to the provisions of General Anti Avoidance Rules (GAAR) contained in Chapter X-A of the Act.
Further, the provisions of Chapter X-A shall be applied in accordance with such guidelines and subject to such conditions and the manner as may be prescribed.For the unitholder to obtain the benefit of a lower rate available under a DTAA, the unit holder is required to provide the Mutual Fund with a certificate obtained from his Assessing Officer stating his eligibility for the lower rate.
The Finance Act 2013, interalia,:
a) has omitted sub-section (2A) of section 90 of the Act applicable from 1st April 2013 as per which the provisions of Chapter X-A relating to GAAR apply to assesse, even if such provisions are not beneficial to the assessee.
b) inserted new sub-section (2A) of section 90 of the Act applicable from 1st April 2015 as per which the provisions of Chapter X-A of the Act relating to GAAR shall apply to assesse, even if such provisions are not beneficial to the assessee.
c) omitted the present Chapter X-A of the Act relating to GAAR w.e.f 1st April 2013 and inserted new Chapter X-A(GAAR) w.e.f. 1st April 2015.
4. Minimum Alternate Tax (MAT):
The provisions of MAT have been made applicable on certain companies (Chapter XII-B) and certain other persons (Chapter XII-BA) as per the provisions contained therein. Income by way of long term capital gains shall be taken into account in computing the Book Profit and income tax payable.MAT provisions are not applicable to an individual, HUF, or an AOP or body of individuals, whether incorporated or not, or an artificial juridical person referred to in section 2(31)(vii) of the Act, if the adjusted total income of such person does not exceed twenty lakh rupees.
5. Short Term Capital Losses
As per section 94(7), if any person acquires units within a period of 3 months prior to the record date fixed for declaration of dividend or distribution of income and sells or transfers the same within a period of 9 months from such record date, losses arising from such sale to the extent of income received or receivable on such units, which are exempt under the Act, will be ignored for the purpose of computing his income chargeable to tax.Further, as per Section 94(8), where additional units have been issued to any person without any payment, on the basis of existing units held by such person then the loss on sale of original units shall be ignored for the purpose of computing income chargeable to tax, if the original units were acquired within 3 months prior to the record date fixed for receipt of additional units and sold within 9 months from such record date. However, the loss so ignored shall be considered as cost of acquisition of such additional units held on the date of sale by such person.
6. Investment by Trusts:
Investment in units of the Mutual Fund rank as eligible form of investment under section 11(5) read with section 13 of the Act and Rule 17C(i) of the Income Tax Rules, 1962 for Public Religious & Charitable Trust.As per the Finance (No.2) Act 2014, w.e.f. 1st April 2014, where a trust or an institution has been granted registration for purpose of availing of exemption under Section 11, and the registration is in force for a previous year, then such trust of institution cannot claim any exemption under any provision of Section 10 [other than that relating to exemption of agricultural income and income exempt under Section 10 (23C] for that previous year. Consequently, these institutions will not be entitled to claim exemption like exemptions pertaining to dividends, long-term capital gain.
7. Higher TDS if PAN not available:
With effect from 01st April 2010, a new provision (section 206AA) has been inserted in the Act. As per this provision, any person entitled to receive any sum or income or amount, on which tax is deductible shall furnish his Permanent Account Number (PAN) to the person responsible for deducting such tax, failing which tax shall be deducted @ 20% or the prescribed rate, whichever is higher. Applicable surcharge, education cess and secondary & higher education cess will also be deducted on such amount of TDS.
8. Wealth Tax
Units of Mutual Fund are not covered under the definition of 'assets' under section 2(ea) of the Wealth Tax Act, 1957, and hence value of investment in units is completely exempt from Wealth Tax.
9. Gift Tax
The Gift Tax Act, 1958 has abolished the levy of Gift Tax in respect of gifts made on or after 1st October 1998. Thus, gifts of units on or after 1st October, 1998 are exempt from Gift Tax. Further, subject to certain exceptions, gifts from persons exceeding Rs.50,000/- are taxable as income in the hands of donee pursuant to section 2(24)(xv) of the Act read with section 56(2)(vii) of the Act.
RELATED LINKS
UTI TAX RECKONER