Listen to this article
In its budget proposal to the Union Finance Ministry, AMFI has requested the finance minister to reintroduce tax exemption in equity mutual funds. It has proposed that equity funds should be exempted from capital gains tax if holding period is more than 3 years.
AMFI said, “Exemption from LTCG tax after 3 years holding period will encourage long-term investments in equities and will help channelize more household savings in to the equity markets, thus helping the Indian economy.”
Further, the threshold limit of long-term capital gains (LTCG) tax in equity funds should be increased from Rs.1 lakh to Rs.2 lakh for holding period of 1-3 years.
Currently, LTCG in equity funds is 10% on income exceeding Rs.1 lakh if units are held for over 1 year.
Another important proposal is taxation in debt funds. AMFI requested that LTCG in debt funds should be applied after 3 years. Such a tax can be charged at 10% without indexation. Currently, gains from debt funds are taxed at marginal rate irrespective of holding period.
Here are the other key proposals of AMFI related to the MF industry:
- Currently, ELSS investment has to be made in multiple of Rs.500. AMFI has requested to remove this condition and allow investors to invest any amount provided it is at least Rs.500
- Introduction of debt linked savings scheme (DLSS) in line with ELSS. However, the trade body suggested a lock in of 5 years, which will be in line with bank FDs
- AMFI requested the ministry to provide clarity on applicability of higher TDS on when PAN becomes inoperative. Non-linkage of Aadhaar and PAN can make PAN inoperative
- Limit on applicability of TDS on dividend income in mutual funds should be increased from Rs.5000 to Rs.50000 per annum
- Currently, NRIs are subject to surcharge on TDS based on slab rate on dividend income. AMFI has proposed this to be made uniform at 10%
- The trade body has requested to bring parity between taxation of physical gold and gold ETFs. Currently, gold ETFs have debt taxation
- MF schemes investing in infrastructure sub sector should be included in the list of specified long assets qualifying for tax exemption on LTCG under Section 54 EC. Such a scheme can come with three-year lock in period
- MFs should be allowed to launch Mutual Fund Linked Retirement Scheme (MFLRS). These schemes should get tax benefits in line with NPS
- FoF investing in equity funds should be allowed to get equity taxation if 90% of the corpus is invested in underlying funds that invest at least 65% of its corpus in equity instruments
- A carve out should be provided for schemes investing in overseas fund or ETFs
