In terms of the grandfathering element for the existing investors it could be possible that the government may actually say it is fine to go ahead and pay just the 10 percent long-term capital gains tax as they did earlier and not the 20 percent
Increasing the long-term capital gains tax rate to 20% from April 1 this fiscal and extending the holding period for debt mutual fund investments to 3 years, is becoming a bone of contention between the fund industry and the ministry of finance.
Big corporate investors are now leaning on the finance ministry to make the changes effective from a prospective date. CNBC-TV18's Sapna Das tells us what is happening on the debt fund issue.
She says there has not been any view taken by the ministry or at the finance ministry level, all the issues are in discussions stages.
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However, the issue of grandfathering has been actually indicated by the finance ministry officials but the point remains as to what this arrangement is likely to be.
The period is one issue that definitely looked at, the period between April 1st and July 10, because the Budget was announced on July 10 itself.
In terms of the grandfathering element for the existing investors it could be possible that the government may actually say it is fine to go ahead and pay just the 10 percent long-term capital gains tax as they did earlier and not the 20 percent. And on that aspect it may be possible that their investments will continue to be treated as 12 months rather than the change in definition from 12 months to 36 months that is which is what the finance bill proposes.
The second element is that the investors who already redeemed the units, it is highly unlikely that the government would ask them pay the differential tax rate, which was changed from 10 to 20 percent.
The third element is a cause of concern because most of the investors in debt funds are big corporate investors with huge cash surplus and that effective tax rate after the indexation benefit is as low as around one percent. This will be a very conscious call that the finance minister and the finance ministry will have to take as to what exactly will be the grandfathering arrangement and if at all the grandfathering arrangement will apply to existing investors.
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