Finance Ministry Weighs Capital Gains Tax Adjustment For Bharat Bond ETF - Details

The finance ministry officials plan to meet with executives from public sector undertakings (PSUs) to assess their funding needs for the current fiscal year. The report added that the Bharat Bond ETF includes bonds issued by Central Public Sector Enterprises (CPSEs), Central Public Sector Units (CPSUs), Central Public Financial Institutions (CPFIs), other government organizations, and three private companies.
Upcoming Budget May Bring Tax Relief for Bharat Bond ETF

Upcoming Budget May Bring Tax Relief for Bharat Bond ETF (Image Source: iStockphoto)

The Indian government is contemplating a modification to the capital gains tax regime for debt mutual funds, aiming to provide relief for the Bharat Bond Exchange Traded Fund (ETF). This issue was discussed during a recent meeting at the finance ministry, as plans are underway to issue a new tranche of the Bharat ETF within the current financial year.
An official revealed that the matter is under review and a final decision will be made when the government finalizes the budget. "Since April 1, 2023, the Bharat ETF is taxed at the slab rate like any other debt mutual fund, which could discourage investors," the official stated.
According to The Economic Times report, the Finance Bill 2023 altered the tax structure for debt mutual funds. Previously, taxation was based on the holding period. For investments held longer than 36 months, capital gains were taxed at 20% with indexation benefits. For holding periods less than 36 months, short-term capital gains applied. Post-amendment, debt mutual funds with equity investments less than 35% are taxed at the applicable income tax slab rate. There is a consideration to create an exemption for the Bharat Bond ETF.
The Department of Investment and Public Asset Management (DIPAM) is expected to submit a formal recommendation to the Department of Revenue for consideration after the government is formed.
Additionally, finance ministry officials plan to meet with executives from public sector undertakings (PSUs) to assess their funding needs for the current fiscal year. The report added that the Bharat Bond ETF includes bonds issued by Central Public Sector Enterprises (CPSEs), Central Public Sector Units (CPSUs), Central Public Financial Institutions (CPFIs), other government organizations, and three private companies. Since its launch in 2018, these institutions have issued bonds and raised Rs 33,400 crore via the ETF platform since 2019.
In December 2023, the government began the process of appointing a consultant to manage the Bharat Bond ETF and advise on issuing a new tranche. However, the changes in the taxation regime have emerged as a significant concern.
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