In its budget wish list sent to the Ministry of Finance, AMFI has sought introduction of mutual fund linked retirement plans under Section 80 CCD, said two people familiar with the development.
AMFI believes that a long term product like mutual fund retirement plans with tax incentive can play a significant role in channelizing household savings to capital markets.
In budget 2014, the draft budget document had a mention on uniform tax treatment for pension fund and mutual fund linked retirement plans.
If implemented, fund houses can launch these retirement products directly by getting approval from SEBI. Currently, fund houses need to take approval of Central Board of Direct Tax (CBDT) to provide tax benefits to investors.
Secondly, AMFI has asked the government to consider extending the tax benefits provided under 80CCD of the Income Tax Act (just like National Pension Scheme) to mutual fund retirement plans. This act provides tax benefits over and above the 80C limit which is currently Rs. 1.5 lakh annually (including an additional Rs. 50,000). Investors get tax deduction of up to 10% of salary, subject to up to Rs.1 lakh on contribution towards pension funds. Currently, NPS doesnt come under EEE (exempt, exempt and exempt) status. Also, Budget 2016 has exempted NPS subscribers from paying tax on 40% of accumulated corpus.
However, AMFI has proposed that the investments under mutual fund retirement plans be categorized under EEE status. Simply put, the investment in these schemes will be subjected to tax exemption during all three phases i.e. investment, accrual phase and redemption.
Now, the government may consider two options to provide uniform tax treatment for pension funds and MF retirement plans or give a separate status to MFLRPs due to its different product design.
It remains to be seen whether the Finance Minister is going to address this issue in the forthcoming union budget.
Currently, only four fund houses HDFC, Reliance, UTI and Franklin Templeton have pension products. Many fund houses like Axis, DSP BlackRock, LIC, Pramerica and SBI have also filed draft offer documents with SEBI to launch their retirement linked mutual funds and are awaiting approval from CBDT.
Experts say that the industry will grow manifold if retirement money flows into mutual funds.