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As Finance Minister Nirmala Sitharaman gets set to present her maiden Union Budget next week, the Association of Mutual Funds in India has proposed introduction of debt-linked savings scheme (DLSS) to deepen the Indian bond market.
Besides, the MF body also seeks uniform tax treatment in respect of investments in mutual fund units and ULIPs of life insurance companies and also for retirement/pension schemes of MFs vis-a-vis NPS.
Mutual fund units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on long-term capital gains (LTCG) under Section 54 EC, said AMFI in its Budget expectation.
It also requested for suitable clarifications with regard to the treatment of the units allotted consequent to segregation of portfolio of a mutual fund scheme in the hands of the unit holder for capital gains tax purposes.
Segregation of portfolio or side-pocketing is essentially splitting the investments into two buckets, similar to demerger. Creation of segregated portfolio is driven by the trustees to protect the interest of investors under certain adverse circumstances of rating downgrade/ credit default, in accordance with SEBI guidelines.
“For an assessee, capital gains tax liability on investment in mutual fund units arises only on redemption or transfer of the units. In the case of side-pocketing, the number of units remains unchanged and only the NAV of the units of the main scheme reduced to the extent of the portfolio segregated from the main portfolio. Therefore, there is no transfer or redemption of the units held by the investor,” AMFI said.
Seeks abolition of STT
The Association also wants that the incidence of Securities Transaction Tax (STT) being paid by MFs on sale of equity shares in respect of schemes should either be abolished altogether or levied only at the time of redemption by the investor. “Alternatively, since mutual funds are paying STT on every transaction on the stock exchanges at the fund level, there should not be any levy of STT on redemption transaction by the investor,” it proposed.
Further, the holding period for long-term capital gains between direct investment in listed debt securities and through debt mutual funds should be harmonised and made uniform, it said, and added the rate of TDS for NRIs on STCG from debt schemes be reduced to 15 per cent from 30 per cent on par with the TDS rate for equity schemes.
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