Union Budget-2023: TDS on Sale of Shares & Mutual Funds


Union Budget-2023: TDS on Sale of Shares & Mutual Funds


Budget time is back and now Budget 2023 may be the election budget of the Modi Government as Budget 2024 may not be a full fledged budget in view of the election ahead. Let us see what could make the Budget 2023 – A dream budget from .

The scope of Tax Deduction at Source (TDS) & Tax Collection at Source (TCS) has widened in the last few years. Now, most of the transactions are either covered by the TDS provision or the TCS Provisions. The objective of TDS & TCS law is very clear, collect tax as you earn at source itself. This makes the task of cross checking easy for the tax collectors.

Two years back, even every transaction of purchase and sale has been covered by TDS or TCS provision by way of section 194Q & Section 206C(1H).

 The share market has witnessed enormous growth as far as retail investors are concerned and reporting requirements is a little cumbersome at the time of filing income tax returns.

Another possible way of going forward in the Union Budget – 2023 could be by making the TDS / TCS applicability of the shares and mutual fund transactions. The transactions are the part of the well organized system and the data/information is duly available with the income tax department by way of Statement of Financial Transactions (SFT) furnished by the brokers and mutual fund houses.

The news from the finance ministry & the media already suggest that the capital gain taxation regime is proposed to be simplified as under:

  1. The different period of holding exists for recognizing the short term capital assets vis a vis long term capital assets. It ranges from 1 years to a period of 3 years. It is different for shares, land/ building vis a vis other assets.  It is likely that the distinction vis a vis class of assets would be removed.
  2. The tax rate is also different and it could be in the range of 10% to 30%. Like, shares with more than one year of holding period is taxable at 10% whereas land & building etc with a holding period of more than 2 years is taxable at 20%. Shares with a holding period of less than a year sold through stock exchange are taxable at 15% whereas other short term capital assets are taxable at the applicable tax slab of the transferor.

It has created enough confusion and complexity.

Now, the issue is further complicated by the fact that the land/building, shears etc could either be considered as Capital Asses or could also be the  part of the stock in trade of the Taxpayers which will also affect the tax liability of the taxpayers.

One easy approach which may be under consideration of the taxmen could be by providing the simplified and specific tax procedure for taxation of shares and mutual funds. The taxation may be provided at source itself with benefit of tax credit or adjustment against other income of the taxpayers.  As a result, the taxpayers will be more concerned at the time of filing tax returns vis a vis sale figures reported in the ITR & its tax credit. The capital gain regime could turn out to be an easy mode of taxation by covering it with TDS provision.

For this, the following changes may be introduced in the Income Tax Law for its easy & convenient implementation:

  1. Provide for the flat rate of taxation for shares and mutual funds by removing the distinction between short term vs. long term assets and by removing the need of classifying it as capital assets or stock in trade.
  2. The information as to the cost of the acquisition is available with the mutual fund houses. The same is available with the share broking houses as well. However, in case of shares acquired by way of gift or will, the mechanism may be introduced to link the cost with the original owner’s cost of acquisition.
  3. The TDS rate as well as taxation head may be kept separate for the “Intra-Day Profit”. TDS may be provided in such a case on the intra-day profit alone & the broker may provide for the system of adjustment with the loss in the next transaction of intra-day profit. If the investor has a different account with a different broker then the taxpayers may not be allowed to adjust it at the time of filing income tax return as the broker is supposed to adjust the TDS in their next transactions. In short, the taxation may be governed by account-wise profit and not assess-wise profit in isolation.
  4. The TDS rate as well as taxation head may be kept separate for the “Future & Option”. TDS may be provided in such a case at the time of settlement or squaring off of the transactions. The broker may provide for the system of adjustment with the loss in the next transaction of F & O.

Above amendment with regard to the TDS on share transactions coupled with the flat rate of taxation may ease the burden of the taxpayers besides ensuring the handsome revenue flow to the Government Treasury.