Union Budget 2024-25 (Full) + FINANCE (No.2) Bill, 2024

The Finance Act, 2023 had introduced 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. Such funds which are adversely impacted include Exchange Traded Funds (ETFs), Gold Mutual Funds and Gold ETFs. In the case of Fund-of-Funds (FoFs) as well, wherein the underlying fund further invests in other instruments, there is ambiguity as to whether they will be considered Specified Mutual Funds as defined in section 50AA. Thus, a need to re-define the term “Specified Mutual Funds” for the purposes of Section 50AA, to provide clarity regarding the proportion of investment being made in terms of debt and money market instruments, and also to clarify the investment requirements in the case of Fund-of-Funds (FoFs) had arisen. Representations from multiple stakeholders were received seeking clarity and revision. It is thus proposed to amend 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.

[Clause 21]

Full Text:

Union Budget 2024-25 (Full) + FINANCE (No.2) Bill, 2024