Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: TAX RATES - GOODS TAXABLE @ 4% :: form 3cd :: ARTICLES ON INPUT TAX CREDIT IN VAT :: cpt :: TDS :: Central Excise rule to resale the machines to a new company :: list of goods taxed at 4% :: articles on VAT and GST in India :: empanelment :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: due date for vat payment :: VAT Audit :: VAT RATES :: ACCOUNTING STANDARDS
 
 
General »
 Shah gets notices over civic tax dues
 Tax revenue down in first six months after prohibition
 Post demonetisation, Income Tax department sends 30 cases of irregularities to Enforcement Directorate, CBI
 Don’t rush into a new tax without being prepared
 Can’t tax income from palace rent: Supreme Court
  Withdrawal of Legal Tender Character of the existing Bank Notes in the denominations of ₹ 500/- and ₹ 1000/- (Updated as on November 30, 2016)
 Cases for tax scrutiny will be selected by machines
 Time to revisit 1997 direct tax rates, says P Chidambaram
 Lok Sabha passes Bill to tax black money deposits post demonetisation
 Last day to pay property tax with old notes
 Income tax department asks IDS declarants to pay tax by 30 November

Scrapping tax benefit to have limited impact on MFs: Expert
January, 19th 2010

There is increasing pressure on the government to withdraw the tax benefits offered to corporates investing in mutual funds. Even the market regulator SEBI has taken a stance that this benefit needs to be scrapped. What are the implications on the mutual fund industry if the government agrees to play ball?

Q: For long, corporates have been using MFs to park money to make use of the tax benefit. Regulators have a view on putting an end to this tax arbitrage. How do you read this development?

A: I am not reading much into this because if you look at the direct tax code, the draft of which was debated and was put on table for discussion and if it ever comes into effect then that does away with all the tax arbitrage which we are talking about in the direct tax code. So I do not think this is actually about time to have a debate on this.

Mutual fund being used as a vehicle which is more tax efficient and there is a differential tax treatment which is recognised by the government. If you look at the dividend distribution tax applicable for companies on the liquid fund compared to an Individual it is different. There are different rates. In fact the taxation rate for individuals compared to companies is different. So I do not see that it has not been recognised.

One particular aspect which is going unknown is that in the absence of mutual fund without being an active investor in the fixed income market, I think the bond markets, which is still very shallow will be completely illiquid.

Q: If the government withdraws the benefit, what according to you will be the implications? Could you quantify the amount of money that corporates have parked in MFs? Do you expect that to come down or ebb considerably on the back of this possible withdrawal?

A: No. I do not see that there will be a complete disappearance of the fixed income investment by companies into mutual funds. There are two-three dimensions to it. One is the sheer absence of alternatives. In fact many small corporates and small companies or even mid-sized companies cannot participate in the fixed income market.

For them to have a diversified portfolio and derive a reasonable return or an optimal return on their cash assets or on their liquid assets with a defined time frame, they do not have anywhere to go. So mutual funds do provide a vehicle whether there is a tax advantage or not.

This is assuming that all the money coming into fixed income fund is entirely because of the tax advantage which may not be true. I visualise that mutual funds will become relatively less attractive but 90% of the business can still be protected because if you look at the liquid fund for example this is a sizable part of the industry and this could be almost a third of the total fixed income funds.

If you look at the liquid plus and the short term funds that could be the remaining part because we do not have any meaningful money in the income fund. I do not think companies can participate or build that portfolio, derive the kind of return in that fund. So it will become less attractive. But I think it will be premature to say the disappearance of the tax arbitrage and it will be the death of the fixed income funds.

Q: Will this also lead to banks becoming more cautious?

A: I think there can be an embargo on banks to be putting money. There is a fear of the cyclicality of this transaction because banks putting money in mutual fund, mutual fund buying short term instrument issued by banks. But this situation is created entirely because of the absence of credit offtake and the clutch of liquidity in the system. I do not know what kind of systemic risk it poses. But it is better to err on the side of caution when you are forced to face with such a situation.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
E-catalogue online catalogue E-brochure online brochure online product catalogue online product catalogue e-catalogue Indi

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions