Posted on: 15 Jun, 2023
I received a lot of questions on the laws surrounding investment rebates given we have a new income tax act about to be passed by the parliament. My understanding is that these laws are retroactive and so any changes will impact the current fiscal year ending June 30th. Anyone looking to maximum tax rebate must thus follow the new rules before June 30th. However, the act is yet to be finally approved by the parliament.
The new income tax act makes a few changes to the tax rebate calculations. The most important among the changes is about eligible securities and their limits.
As per the proposed act, the annual limits for the following securities are
1. Government securities - BDT 500,000
2. Approved unit funds, mutual funds, ETF, collective schemes - BDT 500,000
3. DPS or Monthly savings schemes at banks/NBFIs - BDT 120,000
4. Direct stock investing - Unlimited
For a person earning BDT 200,000 monthly the maximum rebate possible is BDT64,500 and he/she has to invest BDT430,000 in that year in the above-mentioned securities.
There are two key question that comes to mind.
1. Are Sanchaypatras/national savings certificates included in government securities?
Answer: Historically, such certificates were the most popular investment vehicle for getting rebates. Many people have already invested in them to get rebates. However, the definition of securities in the act does not explicitly mention such certificates. So there is a chance, authorities have removed Sanchaypatra to discourage further investments in the category. However, some people opine that they are still included or may get included in final revisions.
2. Why are there limits on open-ended mutual funds and no limits on listed securities?
Answer: The underlying securities in open-ended mutual funds, closed-end mutual funds, and stocks are all the same. The proposed act however puts a limit on open-ended funds but no limits on the other two. This is a problem because it treats two similar assets differently and also discourages investments in professionally managed funds.
Hopefully, the final version of the act will be out very soon. That will allow people to plan accordingly.
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