Budget 2019: Here's AMFI's budget wish list for the mutual fund industry
Familiar demands like DLSS, DDT exemption, tax benefit for retirement plans figure prominently in the list
A Debt Linked Savings Scheme (DLSS)
The mutual fund industry has been demanding a debt mutual fund scheme in the lines of ELSS for a very long time. Amfi has proposed it once again. The basic argument for introduction of DLSS is that many conservative investors do not invest in ELSS to claim tax deductions under Section 80C of the Income Tax Act because they are scared of investing in stocks. The industry believes that these investors would happily invest in a debt scheme like DLSS to save taxes under Section 80C. The mandatory lock-in period in these schemes can be five years like tax saving bank deposits, Amfi said.
Parity with ULIPs
The introduction of long term capital gains tax on equity mutual funds have offered an advantage to Unit Linked Insurance Plans or Ulips. Long term capital gains on equity mutual funds held over a year are taxed at 10 per cent, whereas ULIPs offer tax-free returns. Amfi has requested the finance minister to offer a level playing field to equity mutual funds by withdrawing LTCG tax introduced in the last budget.
AMFI also proposed tax-free intra-scheme switches - switching of investments within the same scheme - for mutual funds. Ulip investors do not pay any capital gains tax on intra-scheme switches when they switch from one investment option to the other with the same plan, whereas mutual fund investors pay capital gains tax when they switch from one plan to the other in a scheme. The mutual fund body also asked the minster to reconsider dividend distribution tax or DDT on equity mutual fund schemes.
Tax benefits for retirement/pension schemes of mutual funds
The mutual fund body wants the government to extend the tax benefits available to National Pension Scheme or NPS to retirement/pension schemes of mutual fund schemes. NPS qualify for tax deductions of up to Rs 1.5 lakh under Section 80C and an exclusive Rs 50,000 under Section 80CCD (1B).
Cover mutual funds under Section 54 EE
Amfi has recommended that units issued by mutual funds that are registered with Sebi with a lock-in period for three years be notified as “Long term specified assets” under Section 54EE. It also asked for similar benefit under Section 54EC.
Clarification on capital gains tax on switching
The mutual fund body asked for a clarification on switching units from regular plan to direct plan or vice-versa and growth option to dividend option or vice-versa, within a scheme of a mutual fund. It requested the goverment to not regard this as a transfer and not charge to capital gains.
Double taxation of STT on equity schemes and ETFs
Amfi has proposed that STT paid on sale of equity shares in respect of MF schemes should either be abolished altogether or levied only at the time of redemption by the investor. Alternatively, since Mutual funds are paying STT on every transaction on stock exchanges at the fund level, there should not be any levy of STT on redemption transaction by the investor.
Align taxation on listed debt securities with debt mutual funds
The holding period for long term capital gains between direct investment in listed debt securities and through debt mutual funds should be harmonized and made uniform. This may be done by bringing the two at par 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, on similar lines of equity funds (a fund is treated as equity fund if it invests 65% or more in equities).
TDS on Redemption amount payable to NRIs
Amfi has proposed that the rate of TDS for NRIs on STCG from debt schemes be reduced from 30 per cent to 15 per cent at par with TDS rate for equity schemes.
New life for Fund of Funds
Amfi has proposed that the definition of “Equity Oriented Funds” (EOF), be revised to include investment in Fund of Funds (FOF) schemes which invest predominantly, say, 65 per cent or more, in units of Equity Oriented Mutual Fund Schemes. The mutual fund body also asked for tax exemption on distributed income from these funds under section 115R of the Act; it also asked for same tax treatment for equity FOF.
Exempt MF investors from Dividend Distribution Tax (DDT)
Citing Section 115TA that exempt institutional investors such as EPFO, NPS, Insurance Companies, non-profit Section 8 companies etc. or Pass-through vehicles who invest on behalf of their investors, Amfi asked the government exempt contributors/policyholders in mutual funds schemes or infrastructure debt funds from Dividend Distribution Tax under section 115R of the Income Tax Act.