Other Amendments :- Budget 2013

      Pass through status of certain Alternative Investment funds:- Section 10(23FB)

Existing Act

Proposed  New changes  (w.r.e.f AY 2013-14)

Section 10(23FB) Any income of a Venture Capital Company (VCC) or Venture Capital Fund (VCF) from investment in a Venture Capital Undertaking (VCU) shall be exempt from taxation. Section 115U Income accruing or arising or received by a person out of investment made in a VCC or VCF shall be taxable in the same manner as if the person had made direct investment in the VCU. Both sections provides a tax pass through status (i.e. income is taxable in the hands of investors instead of VCF/VCC).

The SEBI (Alternative Investment Funds) Regulations, 2012 (AIF regulations) have replaced the SEBI (Venture Capital Fund) Regulations, 1996 (VCF regulations) from 21st May, 2012. In order to provide benefit of pass through to similar venture capital funds it is proposed that : (i)      The existing VCFs and VCCs would continue to avail pass through status as currently available. (ii)    In the context of AIF regulations, the VCC shall be defined as a company and VCF shall be defined as a fund set up as a trust, which has been granted a certificate of registration as VCF being a sub-category of Category I Alternative Investment Fund and satisfies the following conditions:- a) That at least two-thirds of its investible funds are invested in unlisted equity shares or equity linked instruments of venture capital undertaking. b) No investment has been made by such AIFs in a VCU which is an associate company. c) Units of a trust set up as AIF or shares of a company set up as AIF, are not listed on a recognised stock exchange. (iii) In the context of AIF regulations, the Venture Capital Undertaking shall be defined as it is defined in the Alternative Investment Funds Regulations.

      Tax on distributed income by the Mutual Funds :- Section 115R

Existing Act	Proposed  New changes  (w.e.f 01.06.2013)
Any amount of income distributed by the specified company or a Mutual Fund to its unit holders is chargeable to additional income-tax as under: ·         In case of any distribution made by a fund other than equity oriented fund to person other than individual and HUF, @ 30%. ·         in case of distribution to an individual or an HUF it is @12.5% or @25% depending on the nature of the fund.	In case of distribution to an individual or an HUF the tax rate will be 25%. Tax @ 5% on income distributed shall be payable in respect of income distributed by a Mutual Fund under an IDF scheme to a non-resident Investor.

      Taxation of Securitisation Trust:- New Chapter XII-EA (Section 115TA -115TC)

New Sections (w.e.f.  01.06.2013)

Section 161 of the Income-tax Act provides that in case of a trust if its income consists of or includes profits and gains of business then income of such trust shall be taxed at the maximum marginal rate in the hands of trust. The special purpose entities set up in the form of trust to undertake securitisation activities were facing problem due to lack of special dispensation in respect of taxation under the Income-tax Act A special tax regime for Securitisation Trust is proposed, the salient features of the same are :- (i)     In case of securitisation vehicles which are set up as a trust and the activities of which are regulated by either SEBI or RBI, the income from the activity of securitisation of such trusts will be exempt from taxation. (ii)    The securitisation trust will be liable to pay additional income-tax on income distributed to its investors on the line of distribution tax levied in the case of mutual funds. The additional income-tax shall be levied @ 25% in case of distribution being made to investors who are individual and HUF and @ 30% in other cases. No additional income-tax shall be payable if the income distributed by the securitisation trust is received by a person who is exempt from tax under the Act. (iii)   Consequent to the levy of distribution tax, the distributed income received by the investor will be exempt from tax. (iv)  The securitisation trust will be liable to pay interest at the rate of 1% for every month or part of the month on the amount of additional income-tax not paid within the specified time. (v)   The person responsible for payment of income or the securitisation trust will be deemed to be an assessee in default in respect of amount of tax payable by him or it in case the additional income-tax is not paid to the credit of Central Government.