Through a wishlist for Budget 2022-2023, AMFI has reiterated its long-standing request to bring parity in tax treatment of mutual funds and ULIPs, both of which are investment products and invest in securities.
According to the industry body, ULIPs enjoy preferential tax treatment despite being an investment product like mutual funds. "There is still a clear case of tax arbitrage, whereby ULIPs are not only placed at an advantageous position vis-à-vis Mutual Fund Schemes, but there is also a significant revenue leakage on capital gains from ULIPs, especially from HNI segment," the document stated.
The wishlist has several other demands which were part of Budget 2021-2022 proposal as well. Like on the taxation front, the industry body has again urged the finance ministry to bring uniformity in taxation of listed debt securities and debt mutual funds.
Currently, investment in debt-oriented mutual funds qualify as long term capital assets in 36 months, while for listed debt securities like zero coupon bonds the minimum holding period is 12 months.
Other important proposals that are part of AMFI's wishlist for Budget 2022-2023:
- Bring uniformity in tax treatment of intra-scheme switching in mutual funds and ULIPs
- Increase threshold limit for withholding tax (TDS) on income distribution (dividend) on mutual fund units from Rs 5,000 to Rs 50,000
- Surcharge rate on income distribution on equity schemes should be capped at 15%
- Allow investment of any amount in ELSS. At present, investors can put money in the scheme only in the multiples of Rs 500
- Extend indexation benefits to non-resident investors
- Reduce short term capital gains tax for NRI investment in debt schemes to 15% from 30%
- Extend indexation benefits to non-resident investors
- Introduce debt linked savings scheme to help deepen the Indian bond market
- Allow all mutual funds to launch pension-oriented MF schemes with uniform tax treatment
- Notify MF investment as 'specified long-term assets' so that it qualifies for LTCG exemption
- Consider units of debt ETFs as long-term investment if held for 12 months instead of 36 months at present
- Rationalise stamp duty on ETFs and bring applicability of STT in line with equity shares
- Allow insurance companies to outsource fund management activities to AMCs
- Permit Central Public Sector Enterprises to invest in mutual funds
- Accepting debit cards should not be mandatory for mutual funds as it may lead to tax evasion. At present, it is mandatory for businesses to allow payments through RuPay cards
