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MFs bat for tax parity with insurance, NPS schemes in their budgetary wish list

MF units wherein the underlying investments are made into specified infrastructure sub-sector should be included in the list of the specified long-term assets under Section 54EC.

MFs bat for tax parity with insurance, NPS schemes in their budgetary wish list
This includes switching of units from regular to direct plan or vice-versa; and growth to dividend options or vice-versa, within the same scheme of a mutual fund.

The Association of Mutual Funds in India (Amfi) has sent a 25-point wish list to the government as part of its Budget proposals, seeking tax concessions for equity and debt schemes.

The industry body has proposed tax parity during redemption of MF units and withdrawals in ULIPs of life insurance companies. Long-term capital gains (LTCG) arising out of the sale of listed equity shares and units of equity-oriented mutual fund schemes are now taxed at the rate of 10%, if the LTCG exceeds Rs 1 lakh in a financial year. However, the proceeds from ULIPs of insurance companies are exempt from income tax under Section 10(10D) of the Income Tax Act, if the sum assured in a life insurance policy is at least 10 times the annual premium and withdrawn after a lock-in of 5 years. In 2014, Sebi’s ‘long-term policy for mutual funds’ had emphasised that similar products should get similar tax treatment.

Amfi said the intra-scheme switches within the same mutual fund scheme should not be regarded as ‘transfer’ under Section 47 of the IT Act, 1961 and the same should be exempted from payment of capital gains tax. This includes switching of units from regular to direct plan or vice-versa; and growth to dividend options or vice-versa, within the same scheme of a mutual fund.

CPSEs should be allowed to invest 50% of their surplus funds in both private and public sector MFs, instead of only the latter. Currently, seven out of 44 active MFs registered with Sebi are PSU MFs. Mutual funds should be permitted to provide fund management and asset management services to insurance companies.

Equity
LTCG on units of equity-oriented fund schemes should be exempted from capital gains tax if units are held for three years. The surcharge on income distribution on equity MF units should be capped at 15%. “This will encourage long-term investments in equities and help channelise more household savings to the equity markets,” the Amfi proposals said.

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It said the threshold limit for withholding tax (TDS) on income distribution (dividend) on mutual fund units should be increased from Rs 5,000 to Rs 50,000 per annum. Investments of any amount, subject to a minimum of Rs 500, should be permitted in ELSS instead of multiples of Rs 500.

MFs should be allowed to launch pension-oriented MF schemes with similar tax benefits as applicable to NPS under section 80CCD (1) & 80CCD (1B) of IT Act.

Debt

The minimum period of holding for units of debt ETFs, as well as gold and silver ETFs, for LTCG purposes should be reduced to 12 months, at par with listed securities. Redemption of units in fund of fund schemes investing 90% or more in equity-oriented funds should be subjected to the same tax treatment as equity funds.

Debt-linked savings schemes with a five-year lock-in should be introduced to channelise long-term savings of retail investors into higher credit-rated debt instruments with appropriate tax benefits.

Gold ETFs and FoFs, which invest 90% or more in units of gold ETFs, should be subjected to long-term capital gains tax at 10% instead of 20% with indexation or the holding period to avail long-term capital gains taxation be reduced to 1 year.

The holding period for long-term capital gains for direct investment in listed debt securities and zero-coupon bonds (listed or unlisted) and for investment through debt mutual funds should be made uniform. This may be done by treating investments in non-equity oriented mutual fund schemes which invest 65% or more in listed debt securities as long-term, if they are held for more than 12 months. Or increasing the minimum holding period for direct investment in listed debt securities and zero-coupon bonds (listed or unlisted) to 36 months to qualify as long-term capital asset.

Miscellaneous
MF units wherein the underlying investments are made into specified infrastructure sub-sector should be included in the list of the specified long-term assets under Section 54EC.

Mutual funds should be exempted from the provisions of Section 194R as they provide service to general retail public, similar to banks and insurance companies.

Stamp duty should be rationalised and levied only once for equity and debt ETFs (other than government securities) instead of being paid on multiple legs for the same units that are issued.

A uniform rate of surcharge at 10% on TDS for NRIs should be levied for dividends from MF units.

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First published on: 26-11-2022 at 02:00:00 am