The Hindu Business Line : UTI MF seeks exemption on long-term capital gains

UTI Mutual Fund, the country's largest mutual fund, has written to the Finance Ministry seeking to extend the proposal on long-term capital gains tax exemption for securities transactions to mutual funds.

It has also suggested that the proposed reduction in rate of short-term capital gains from 20 per cent to 10 per cent be applicable to units of mutual funds. UTI MF has also said that the proposed 0.15 per cent securities transaction tax should not be imposed on debt securities.

It's contention is that the Finance Bill 2004, in the current form, seeks to grant long-term capital gains tax exemption to only those securities that are sold in the recognised stock exchanges. This would imply that investors transacting in units of mutual funds cannot enjoy such exemption, as such transactions are carried outside the stock exchanges.

"Our plea is that units of mutual fund should also be entitled for the exemption on long-term capital gains. Otherwise, there is a possibility that investors, especially high networth individuals, would directly buy and sell shares without going to mutual funds. This is a trend that should not be encouraged in an economy such as ours," Mr A.K. Sridhar, Chief Investment Officer, UTI Asset Management Company Pvt Ltd, told Business Line here.

On the rationale behind the demand that the 0.15 per cent securities transaction tax should not be imposed on debt securities, Mr Sridhar said the 15-basis-point levy would add to the transaction cost and may reduce returns for the fund that is investing in debt securities.

The Chairman of the Association of Mutual Funds In India (AMFI), Mr A.P. Kurien, said there is a "built-in discrimination" against mutual funds in the proposed tax regime that seeks to grant long-term capital gains tax exemption to only those securities that are traded in the stock exchanges. "I think it is unintentional. We have approached the Finance Ministry on this issue and asked for parity on this matter. We hope to get a favourable response and the taxation regime would be harmonised," he said.

AMFI has also urged the Finance Ministry to exclude debt securities from the proposed securities transaction tax. "The issue is big, serious and critical for the debt securities market. Our point is that the levy would not be sustainable for debts. It would not be sustainable from the stand point of yield," he said.

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