Debt securities

Expectations of the 2022 budget: standardize the taxation of debt securities and listed debt funds

While the minimum holding period for debt funds (listed or not) to qualify as long-term fixed assets is 36 months, that of direct investments in listed securities is only 12 months.

Since there is a difference in tax treatment between debt oriented mutual fund units and listed debt securities – while the minimum holding period for debt funds (listed or unlisted) to be qualified as long-term fixed assets is 36 months, that of direct investments in listed securities such as bonds / bonds, government securities, derivatives, etc. listed on a recognized stock exchange in India and zero coupon bonds (listed or unlisted) is only 12 months old – the Mutual Funds Association of India (AMFI) urged the government to bring parity between the two sets of instruments.

Indeed, after having made a direct investment in a listed debenture, an investor must wait only 12 months to benefit from the long-term capital gains tax (LTCG), while an investor must wait 36 ​​months. to benefit from the benefit of the LTCG tax after investing in units of debt oriented investment funds.

In other words, the holding period for the direct investment in a listed bond to be treated as a long-term investment for capital gains tax purposes is 12 months; whereas, if the same investment is made through a debt-focused mutual fund, the holding period is extended to 36 months to be considered a long-term investment for income tax purposes. capital gains, which is ironic.

Thus, establish parity in holding periods for capital gains tax purposes for direct investments in listed debt securities and investment in such listed debt securities through fund systems Debt-driven mutuals, would be a logical and fair move.

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To bring parity in the duration of the holding of long-term capital gains for direct investments in listed debt securities / and Zero Coupon Bonds (listed or unlisted) and for investments through mutual funds of debt, AMFI urged bringing well-deserved uniformity either by –

(i) reduce the long-term capital gains holding period for investments in non-equity mutual funds, which invest 65 percent or more in listed debt securities, to 12 months; Where

(ii) by increasing the minimum holding period for direct investments in listed debt securities / and Zero Coupon Bonds (listed or unlisted) to 36 months to qualify as long-term immobilization.

According to the press release containing its budget forecasts for the 2022-2023 fiscal year, AMFI said: “It is only logical and fair to provide parity in the tax treatment of direct investments in listed debt securities and indirect investments in the same instruments through mutual fund debt.

“This parity between direct investments in a listed security (by companies and HNIs) and indirect investments made through mutual funds by private investors would also prevent leakage of tax revenue,” AMFI added in the report. communicated.

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