New Provisions
Special provision for computation of Capital gains in case of market-linked debentures
• Market-linked debentures are listed securities which combine features of plain vanilla debt securities and exchange traded derivatives.
• Further, being linked to the market performance, they provide variable returns to the investors as well.
• Currently, long-term capital gains (LTCG) arising from transfer, redemption or maturity of said securities are being taxed at a concessional rate of 10%.
• However, since these securities are in the nature of derivatives which are normally taxed at applicable rates, it has been proposed to tax such gains as short-term capital gains (STCG) at applicable normal rates of tax without allowing deduction of Securities Transaction Tax (STT) paid – [Section 50AA]
• Further, it has also been proposed to define market-linked debentures as securities having underlying principal component in the form of debt security and where the returns are linked to market returns or other underlying securities or indices and include those which are classified/ regulated by SEBI.
New Provisions
Conversion of gold to Electronic Gold Receipts (EGR) and vice versa
Pursuant to the announcement in Budget 2022, SEBI came out with a detailed framework for spot trading in gold on existing stock exchanges through EGR.
• Capital gains exemption: In order to promote the concept of electronic gold, it has been proposed to provide exemption from capital gains tax on conversion of physical gold into EGR (issued by a SEBI registered vault manager) - [Section 47(viid)]
• Cost of Acquisition (COA): Further, it has also been proposed to provide that the COA of EGR for the purpose of computing capital gains shall be deemed to the cost of gold in the hands of person in whose name EGR is issued - [Section 49(10)]
• Period of Holding (POH): It has also been proposed to provide that POH shall include the period for which gold was held by the assessee prior to its conversion into EGR - [Clause (hi) to Explanation 1 of Section 2(42A)]
Similar tax provisions and clarifications have been provided in case of conversion of EGR into gold
Amendment in existing provisions
Capital gains deduction on residential property
• The existing provisions allow deduction/ relief from long term capital gains without any monetary limit to individuals and HUFs on reinvestment in a new residential property – [Section 54/ 54F]
• The primary objective of the tax incentive was to mitigate the shortage of housing and promote construction of residential property.
• It has been proposed to limit the roll-over benefit and cap the deduction at INR 10 crores. Consequentially, it has been proposed that the provisions relating to deposit in Capital Gains Account Scheme shall apply only to capital gains/ net consideration up to INR 10 crores.
Cost of Acquisition/ Improvement of self-generated intangible assets and rights
• Cost of acquisition of other self generated intangible assets or rights has been a matter of litigation.
• It has been proposed to provide that cost of acquisition/ improvement of self-generated intangible assets and rights is to be considered as ‘Nil’ while computing capital gains on their disposal.
Amendment in existing provisions
Prevention of double deduction claimed on interest on borrowed capital
• It was observed that some assessees have been claiming deduction for Interest paid on borrowed capital for acquiring, renewing or reconstructing a property as a deduction for computation of income from house property.
• Further the assessees are claiming the deduction again while computing capital gains on transfer of such property by including the interest expense as part of cost of acquisition or cost of improvement of the immovable property.
• Accordingly, in order to prevent the double deduction, it has been proposed that interest on housing loan already claimed as a deduction under other specified provisions shall not be included in cost of acquisition/ improvement for the purpose of capital gains arising on the transfer of such asset.
Clarification on capital gains on consideration received through cheque, draft, etc. in case of JDA
• Under the existing provisions, for computing capital gains arising to an Individual/ HUF from transfer of land or building under a Joint Development Agreement (JDA), sales consideration is taken as circle value of assessee’s share in the property as increased by the consideration received in ‘cash’ – [Section 45(5A)]
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Amendment in existing provisions
• In order to provide clarity, it has been proposed to amend the said provisions to provide that the sales consideration received on transfer of property under a JDA shall also include amounts received in cheque or draft or any other mode.
Sunset clause on tax exemption on relocation of offshore funds to an Indian fund located in IFSC
• Under the current provisions, the last date for transfer of assets of an overseas fund (‘original fund’), or of its wholly owned special purpose vehicle, to a resultant fund (Indian fund located in IFSC) in case of relocation was 31st March 2023 – [Section 47(viiad)]
• In order to further incentivize operations from IFSC, It has been proposed to extend the current limitation period of 31st March 2023 to 31st March 2025
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New Provisions
Tax rates prescribed for new manufacturing co-operative societies
• Existing provisions provide for an option to pay concessional tax rate of 15% only to new manufacturing domestic companies. However, the same provision has not been provided for cooperative societies engaged in manufacturing activities.
• Accordingly, it has been proposed to provide the concessional 15% tax regime to new manufacturing cooperative societies as well. The conditions attached are materially similar to the conditions applicable to manufacturing companies.
• It is also proposed that the assessee shall only be engaged in the business of manufacture/ production of article or thing (including business of generation of electricity but excluding certain specified businesses), and any income arising to the assessee which is not derived from or incidental to manufacturing operations shall be taxable at the rate of 22%, without availability of any deduction or allowance.
It has been clarified for cooperative societies that income-tax payable for short term capital gains derived from transfer of a nondepreciable capital asset shall be computed at the rate of 22%
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