Budget 2020: AMFI wants debt tax-saving fund, relief on DDT, SST, LTCG, parity with NPS, ULIP

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Updated: January 18, 2020 9:36:52 PM

Union Budget 2020: AMFI has submitted a long list of Budget wishlist with 17 proposals to the Finance Ministry, which, if implemented, would help larger penetration of the MF industry in the country.

Budget 2020, Union Budget 2020, Union Budget India, Union Budget India 2020-21, AMFI, Mutual Fund, MF, Debt Lined Savings Scheme, DLSS, ELSS, DDT, STT, LTCG, capital gain tax, ULIP, NPSBudget 2020: AMFI proposes relevant changes in tax laws to enable employers to use retirement / pension schemes offered by mutual fund companies to provide retirement benefits like that of NPS and EPF.

Union Budget India 2020: With the Union Budget 2020-21 about half a month away, Mutual Fund (MF) body Association of Mutual Funds in India (AMFI) has submitted a long list of Budget wishlist with 17 proposals to the Finance Ministry, which, if implemented, would help larger penetration of the MF industry in the country.

Some of the significant proposals of AMFI are as follows:

Introduction of Debt Linked Savings Scheme

After the euphoria over introduction of debt based Bharat 22 ETF, AMFI wants a Debt Linked Savings Scheme (DLSS), which would be the debt-oriented version of popular tax-saving scheme Equity Linked Savings Scheme (ELSS). According to the proposal, tax benefits on investments up to Rs 1.5 lakh in DLSS may be given to investors under Chapter VI-A. The lock-in period of the scheme would be 5 years and the long-term savings of retail investors would be channelised into corporate bond market, in order to help in deepening the Indian Bond Market.

Re-introduction of MF schemes for saving capital gain tax

Along with the Capital Gain Bonds u/s 54EC, currently issued by NHAI and REC, AMFI wants re-introduction of MF schemes, investments in which would allow investors save capital gain tax arising on sale of capital assets like residential property, by investing the gain amount in such MF schemes.

Parity in tax treatment with ULIP

To have a level playing ground on taxation front with Unit-Linked Insurance Plans (ULIPs) of insurance companies, AMFI wants exemption in capital gain tax on intra-scheme switches and repeal of long-term capital gain (LTCG) tax on equity-oriented MF schemes, that is imposed on LTCG on equity exceeding Rs 1 lakh in a financial year.

AMFI has further proposed to abolish the Securities Transaction Tax (STT) levied on redemption of MF units and repeal of Dividend Distribution Tax (DDT) levied on dividend paid under equity-oriented MF schemes. To eliminate double taxation, AMFI has also proposed to abolish DDT on dividend declared by MFs to the extent of dividend received from companies, on which DDT was already charged.

Uniform treatment for retirement / pension schemes of MFs and NPS

AMFI has proposed that the retirement / pension schemes offered by mutual fund companies also be given EEE (Exempt-Exempt-Exempt) status like that of National Pension System (NPS) and also wants relevant changes in tax laws to enable employers to use such schemes to provide retirement benefits like that of NPS and EPF. For this, AMFI wants similar tax treatment on mandatory contribution by employees up to 10 per cent of salary and on matching contribution by the employers. Same tax treatment should also be given to such schemes at the time of withdrawal as given to NPS.

Apart from these, to bring full parity with NPS, AMFI also wants tax benefits on voluntary contributions to such schemes up to Rs 50,000 in a financial year over and above the 80C limit of Rs 1.5 lakh.

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Relief on DDT, STT and Capital Gains Tax

AMFI has proposed exemption from DDT in respect of tax-exempt institutional investors like NPS, EPFO and has requested the Finance Ministry to lower the DDT on dividend paid by debt-oriented MF schemes from 25 per cent for individuals and 30 per cent for corporates to uniform rate of 22 per cent to bring it at par with the Corporate Tax rate.

To eliminate double taxation, AMFI has also proposed to abolish STT on redemption of units in equity-oriented MF schemes, as well to abolish STT on sale of units in Exchange Traded Funds (ETFs) on a stock exchange.

It has also been proposed to abolish the Capital Gains Tax on switching of units in the same scheme of mutual funds, like switch between regular and direct plans as well as switch between growth and dividend options.

Other proposals

AMFI has also made several other proposals like – lowering of threshold limit of the total proceeds of funds from 65 per cent to the earlier level of 50 per cent to qualify as equity-oriented funds, lowering of holding period of Gold ETFs from 3 years to 1 year for LTCG purpose, reduction of TDS for NRIs on STCG from debt schemes from 30 per cent to 15 per cent, etc.

Do you know What is Finance Bill, Short Term Capital Gains Tax, Fiscal Policy in India, Section 80C of Income Tax Act 1961, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

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