Finance Minister Pranab Mukherjee on Monday proposed to allow foreign investors fulfilling KYC requirements to invest in Indian mutual funds. Here are the proposals that have a bearing on financial services:
Additional income tax proposed at a higher rate of 30 per cent on income distributed by debt funds to investors other than individuals and HUF. Additional income tax of 25 per cent proposed on income distributed to individuals and HUFs by money market and liquid funds and 12.5 per cent on income distributed to individuals and HUFs by other debt funds.
Cafemutual Comment: This is a negative for debt funds. Bulk of the investments in debt funds are by corporate investors.
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Foreign investors who meet the KYC requirements are proposed to be allowed to invest in equity schemes of mutual funds in India. This would enable mutual funds to have direct access to foreign investors and widen the class of foreign investors in Indian equity market. FIIs and their sub-accounts registered with SEBI and NRIs are currently allowed to invest in mutual funds.
Cafemutual Comment: This is a positive development for mutual funds. The potential inflows from foreign investors directly into mutual fund schemes could be huge.
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In order to promote savings and raise funds for infrastructure, tax exemption on additional Rs 20,000 investment in long-term infrastructure bonds will be continued for one more year.
Cafemutual Comment: This is a positive proposal but has not been a big draw for individual taxpayers.
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Services provided by life insurance companies in the area of investment are proposed to be brought into the service tax net on the same lines as ULIPs.
Cafemutual Comment: This brings both ULIP and non-ULIP insurance on par. There is a possibility that life insurers will pass this burden on to insurance buyers.
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The government proposes to move in the parliament The Insurance Laws (Amendment) Bill, 2008. The bill had proposed to raise FDI limit to 49 per cent from 26 per cent and to do away the requirement for Indian promoters of private life insurance companies to bring down their stake after 10 years to 26 per cent.
Cafemutual Comment: This signifies the government's intent to go ahead with insurance sector reforms.
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The Justice B N Srikrishna headed Financial Sector Legislative Reforms Commission will complete rewriting and streamlining of financial sector laws, rules and regulations in 24 months to meet the requirements of a modern financial sector.
Cafemutual Comment: A complete revamp of financial sector laws is overdue.
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The Direct Taxes Code will be finalized for enactment during 2011-12. DTC is proposed to be made effective from April 1, 2012.
Cafemutual Comment: This is a move towards a more simple and more effective taxation framework.
