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Budget 2014: expectations in the financial services sector


In preparation for the Union Budget 2014, Taxand India outlines the expectations on tax in the Financial Services sector.

Expectations on taxation:  Direct tax

  • Greater clarity is required under the Income-tax Act as regards the tax neutrality on conversion of a foreign bank branch into a Wholly Owned Subsidiary
  • Full tax deduction should be granted to banks on provisions created on NPAs
  • Transfer of units in case of merger of schemes of Indian mutual funds should be made tax neutral for unit holders
  • It is recommended that some safe harbour rules should be introduced in the Income-tax Act to provide that gains earned by such offshore funds would be regarded as capital gains
  • Grant tax pass-through status for tax exemption under the Income-tax Act for all categories of Alternate Investment Funds
  • Income distributed by securitisation trusts should not be subject to distribution tax
  • To provide a level playing field to the general insurance industry vis-à-vis the life insurance industry, general insurance companies should also be exempted from the levy of Minimum Alternate Tax

Expectations on taxation:  Indirect tax

  • Validate tax-free status to stock broking services provided to overseas entities by classifying them under Rule 3 of the Place of Provision of Services Rules
  • Clarify the scope of ‘intermediary services’ in terms of explaining scope of expression arranging and facilitating, limiting it to agency and broking based relationships
  • Clarify the applicability of service tax on charges deducted by foreign banks on account of remitting funds to the Indian bank account
  • Clarify that entry load and exit load charged by mutual funds should not be subject to service tax as there is no service per se that is provided by mutual funds to unit holders
  • Lay out a clear road map for introduction of Goods and Service Tax, especially on the tax rate structure that would prevail

Discover more: Union Budget 2014 & the expectations in the FS sector

Your Taxand contact for further queries is:
Mukesh Butani 
T.+91 124 339 5010

Quality tax advice, globally


Also published in Thomson Reuters' Taxnet Pro, 18 July 2014

Taxand's Take

The Financial Services has always been a key legislative area for India, the outcome of the budget in this area should be monitored carefully by all companies.

Taxand's Take Author

Mukesh Butani
Taxand Board member

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