The Association of Mutual Funds in India (Amfi) has sought restoration of indexation for debt funds and granting capital gains tax exemptions for holding equity-oriented schemes for long-term in the Budget. It has submitted a total of 27 recommendations to the government.
For debt mutual funds held for more than 36 months, Amfi has asked to restore long-term capital gains with indexation, as it incentivises long-horizon, fixed-income saving; restores parity with other long-term assets and channels household savings to the corporate bond market. It has requested to introduce debt-linked savings scheme (DLSS) to help expand the bond market as the retail penetration in corporate bonds is low.
Reviving Fixed Income
One of the equity-related proposals is that the LTCG exemption on listed equity shares or units of equity-oriented fund schemes held for one-three years be increased to gains of Rs 2 lakh from the current Rs 1.25 lakh, or that tax on long-term capital gains from units of equity-oriented mutual funds and other than specified mutual funds held for more than 5 years be granted exemption from the income tax.
Currently, due to the standard rate of tax post holding period of 12/24 months, most investors redeem their investments after the said period, leading to substantial capital being pulled out of the mutual fund industry, it noted.
Amfi has also suggested providing a separate deduction exclusively for ELSS investments under the new tax regime with a notified cap, and has requested to amend equity linked savings scheme rule, deleting the stipulation that investments in ELSS should be multiples of ₹500 and permit investments of any amount, subject to a minimum of Rs 500, to reduce difficulties for investors and mutual funds without causing any revenue loss.
Equity & Operational Shifts
It has suggested expanding the definition of “Equity Oriented Funds” to include investment in Fund of Funds schemes, which invest a minimum of 90% of the corpus in units of equity-oriented mutual fund schemes, which, in turn, invest a minimum of 65% in equity shares of domestic companies to get the same tax treatment as applicable to equity-oriented funds.
The industry body has also sought relief on TDS-related issues, proposing that the threshold for tax deducted at source on mutual fund income distribution be raised from Rs 10,000 to Rs 50,000. It has also requested reclassification of passive schemes under Sebi’s MF Lite framework be kept tax-neutral and that mutual funds having a minimum investment of 65% in ReITs or InvITs be brought on par with the tax treatment as equity-oriented funds.