AMFI’s Budget Wishlist For Mutual Funds

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AMFI’s Budget Wishlist For Mutual Funds
Ashfaque Ismail - 02 July 2019

The Association of Mutual Funds in India (AMFI), apex decision making body for mutual funds, has drawn its own wish-list of items for mutual funds. It has raised the following demands.

Introduction of Debt Linked Savings Scheme

It is proposed to introduce “Debt Linked Savings Scheme” (DLSS) on the lines of Equity Linked Savings Scheme, (ELSS), to channelise long-term savings of retail investors into corporate bond market, which would help deepen the Indian Bond Market.

“At least 80% of the funds collected under DLSS shall be invested in debentures and bonds of companies as permitted under SEBI Mutual Fund Regulations. (As there are) pending investment of the funds in the required manner, the funds may be invested in short-term money market instruments or other liquid instruments or both,” according to the AMFI finding.

It is further proposed that the investments upto Rs 1,50,000 under DLSS be eligible for tax benefit under Chapter VI A, under a separate sub-Section and subject to a lock in period of 5 years (just like tax saving bank fixed deposits). CBDT may issue appropriate guidelines/ notification in this regard as done in respect of ELSS.

Over the past decade, India has emerged as one of the key markets in Asia. However, the Indian corporate bond market has remained comparatively small and shallow, which continues to impede companies needing access to low-cost finance. As per the data from Asia Securities Industry & Financial Markets Association (ASIFMA), the corporate bond markets of Malaysia, South Korea, Thailand, Singapore and China exceed that of India as a percentage of GDP.

On Intra-Scheme Switches

Besides, AMFI said in its statement. “It is proposed that in case of Intra-Scheme Switches (i.e., switching of investment within the same scheme of a Mutual Fund) is not regarded as a “Transfer” under Section 47 ofthe IT Act, 1961 and be exempt from payment of capital gains tax.”

“It is requested to reconsider the matter and exclude the mutual units of equity-oriented mutual fund schemes from the ambit of LTCG tax and maintain status quo ante, insofar as LTCG from equity mutual fund schemes are concerned, keeping the interest of the retail investors and to ensure level playing field between equity mutual fund schemes and ULIPs,” according to the AMFI proposals. AMFI also proposes to abolish the STT levied at the time of redemption of Mutual Fund Units by the investor.

Abolition of Dividend Distribution Tax

The mutual funds body it was also requested to re-consider the matter and abolish the DDT on dividend paid under equity oriented mutual fund schemes maintaining status-quo ante, keeping the interest of the retail investors, and to have a level playing field and uniformity in taxation of investment in MF schemes and ULIPs of Insurance companies.

Remove STT

AMFI data proposes to abolish the STT levied at the time of redemption of Mutual Fund Units by the investor.

Tax exemption under Section 80C

Some key recommendations:

i. As in the case of NPS, investment in Retirement Benefit or Pension Schemes offered by Mutual Funds up to Rs 150,000 should also be allowed tax deduction under Sec 80CCD (1) of Income Tax Act, 1961 (instead of Sec. 80C), within the overall ceiling of Rs 1.5 lakhs under Sec 80 CCE, with E-E-E status.

ii. Likewise, the additional deduction for investment up to Rs 50,000 under section 80CCD (1B) (presently available to NPS subscribers should be extended to investment in Mutual Fund Retirement Benefit or Pension Schemes, over and above the deduction of Rs 1.5 lakh under section 80C of Income Tax Act,1961.

iii. Where matching contributions are made by an employer, the total of Employer’s and Employee’s contributions should be taken into account for the purpose of calculating tax benefits under Sec. 80 CCD.

iv. Further, the contributions made by an employer should be allowed as an eligible ‘Business Expense’ under Section 36(1) (iva) of Income Tax

Act, 1961.

v. Likewise, contributions made by the employer to Mutual Funds’ Retirement Benefit or Pension Schemes up to 10% of salary should be deductible in the hands of employee, as in respect of Section.

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