ज़ोर का झटका…धीरे से लगे

“What is the difference between retrospective and retroactive?” asked my broker friend Jigneshbhai, as we met over coffee last weekend after a long time.

Surprisingly, the question today was from Jigneshbhai rather than Swami.

Swami looked at my broker friend and shrugged it off. “They are the same I think. Why?”

“Well someone from the finance ministry said that the short-term tax now applicable as per this year’s budget on redemption in non-equity funds within three years is retroactive and not retrospective. And I am wondering what that means?” Jigneshbhai asserted, uncharacteristically still lost in thought.

Swami and I looked at each other wondering what that meant. We were mostly used to Jigneshbhai explaining things to us. But this time he was the one asking questions, and that too complex ones.

We gave him a puzzled look which, more or less, told him that we didn’t understand either retrospective or retroactive.

But our broker friend persisted.

“So if I sell you a product thinking its returns are going to be, more or less, tax free, and then you buy that thing thinking it is going to be, more or less, tax free, and then when it comes up for redemption, the government says it is taxable – is it retrospective or retroactive?” asked Jigneshbhai, looking up from his sheets he had with him.

As usual, Swami was the one who had to respond first.

“So what did you sell me as tax-free that I have to pay tax on now?” he asked.

“Well, I did not sell, but I advised you. I told you they were reasonably safe – like your favourite FDs but with no tax. It made sense then, didn’t it? To put money in FMPs or short-term debt funds for a bit more than a year? Now he says put it for 3 years or pay tax” retorted Jigneshbhai, almost with a tinge of bitterness that I generally associated with Swami.

Both Swami and I were a bit surprised at Jigneshbhai’s rare show of emotion in this case.

But he was not done.

“And the worst part is, debt fund holders at least have a choice of not redeeming if they can hold. FMP investors have no choice” Jigneshbhai continued, now with a tinge of anger to add to the bitterness.

“And it is not just these. You have to pay tax for any ‘within three years redemption’ on gold, international and MIP funds – all non equity oriented funds” he clarified.

We stayed silent, trying to absorb what all Jigneshbhai had said.

After a brief period of silence, my broker friend cooled down a bit. But his mood hadn’t changed much.

Swami tried to intervene. “But if I don’t sell for three years, I don’t pay tax?”

“Yes. But in FMPs, you don’t have a choice,” replied Jigneshbhai, still quite morose.

Swami almost neglected Jigneshbhai’s mood, almost like my broker friend does to Swami most of the times.

And in a state of nonchalance that I associated with my broker friend, Swami declared, “So now I got it. For FMPs, the tax is retrospective, as there is no option. For others, it is retroactive, as it relates to the past but there is an option if you hold for 3 years.”

Both Jigneshbhai and I looked at Swami, surprised at his assertion.

Perhaps he was right in the technicalities, but we were not sure. My broker friend was clearly not impressed, though he had got his definitions clarified from an unexpected source.

Grudgingly, he said, “Well, yes. Perhaps you are right. But it is still not fair. It is like changing the rules of the game after all sides have played to another set of rules.”

Just as we were having this conversation, I noticed the wealthy man from the sprawling bungalow sitting near us, listening to my broker friend’s disappointment.

He walked up to Jigneshbhai and putting his hand on my broker friend’s shoulder, he said “Yes, it is not fair. A bit like Duckworth-Lewis method forced on a match. A small rule that makes a big difference.”

As we finished our coffee, he picked up his soft drink and said, “ज़ोर का झटका…धीरे से लगे!”