AMFIs Budget 2020 proposal
Currently, more eyes are on the Budget 2020 which is just a few days away. In the light of Budget 2020, AMFI has proposed a few points to take our mutual fund industry on the new highs in the coming years. AMFI believes that these points would help make mutual fund to be friendlier for retail investors. Following are some of the key points proposed by the AMFI:
Debt-Linked Saving Scheme (DLSS)
AMFI has proposed to introduce DLSS which would be eligible for the tax benefit up to Rs 1.5 lakh under section 80C of Income Tax Act, 1961. This scheme is proposed to have a lock-in period of five years unlike Equity-Linked Saving Scheme (ELSS) where lock-in period is just for three years. This scheme would help increase the retail participation on debt funds as well, which is right now pretty low, as compared to equity participation.
Specified Long-Term Assets
According to AMFI, the investment done by selling mutual funds or stocks rarely comes back to capital markets. This is due to the fact that, there is capital gains tax exemption under section 54 or 54F. This makes people prefer reinvesting the capital gains arising from the sale of an immovable property to buy another property in NHAI or REC bonds to avail such exemptions. Hence, in order to channelise at least some of the gains from the sale of immovable property into capital markets, AMFI has proposed to broaden the list of the specified long-term assets under section 54 EC by including mutual fund units with a lock-in period of three years.
Uniform tax treatment
Unit-Linked Insurance Plans (ULIPs) are treated as insurance plans for tax purposes. However, like mutual funds, ULIPs are also investment products that invest in securities, with a life insurance cover. Due to ULIPs tax treatment, retail investors can easily get lured by the insurance agents. This potentially leads to mis-selling of ULIPs as an investment product. Hence, in the interest of the retail investors and to ensure a level playing field between mutual fund schemes and ULIPs, AMFI proposes to reconsider the matter and exclude the mutual units of equity-oriented mutual fund schemes from the ambit of Long-Term Capital Gain (LTCG) tax.
Segregated portfolio
AMFI has requested suitable clarifications to be issued with regard to the treatment of the units allotted consequently on segregation of portfolio of a mutual fund scheme in the hands of the unit holder for the capital gains tax purposes that:
The allotment of units in a segregated portfolio of a mutual fund scheme is not a transfer under section 47 of the Income Tax Act.
The period of holding of such units shall be reckoned from the date of investment by the investor [with suitable explanation under section 2(42A)].
Equity MF threshold limit
It is proposed by AMFI that the threshold limit of the equity-oriented mutual funds to be restored to 50 per cent. Reducing the current threshold limit of 65 per cent for equities to 50 per cent would encourage more investors having a lower risk appetite to invest in equity mutual funds.
Other proposals
There are various other proposals made by AMFI. These include bringing down the rate of Tax Deducted at Source (TDS) from 30 per cent to 15 per cent for NRIs on short-term capital gains from debt schemes at par with TDS rate for equity schemes. AMFI also proposed uniformity in tax treatment of infrastructure debt funds of mutual funds and infrastructure debt funds of Non-Banking Financial Companies (NBFCs). Also, AMFI proposed to eliminate double taxation of Securities Transaction Tax (STT) on equity-oriented mutual funds and Exchange-Traded Funds (ETFs).