AMFI seeks tax waiver for debt linked savings schemes

The Association of Mutual Funds in India has urged the government to consider tax exemption for investments made up to Rs 1,50,000 under Debt Linked Savings Scheme with a lock in of five years ( like tax saving Bank Fixed Deposits).

If large borrowers like government bodies investing in infrastructure projects are persuaded to raise funds from the market, it will increase bond issuance and attract more investors, which will also generate liquidity in the secondary market. DLSS will help small investors participate in bond markets at low costs and at a lower risk as compared to equity markets. This will also bring debt oriented mutual funds on par with tax saving bank fixed deposits, where deduction is available under Section 80C, said the lobbying body of mutual funds in its Budget proposal to Government.

AMFI said Unit Linked Insurance Plans and Equity MFs be brought on par on Tax Treatment besides abolishing STT (securities transaction tax) on Equity Funds at time of redemption and exempting capital gain tax on switches within mutual fund schemes.

AMFI has also sought clarity on the capital gains tax treatment on creation of segregated portfolio in mutual fund schemes.

There is an ambiguity on the capital gains tax treatment upon the sale of Units with regard to the treatment of the Units allotted consequent on segregation of portfolio.

Segregated portfolio are created to protect the interest of investors, under certain adverse circumstances of rating downgrade / credit default. In the case of side-pocketing, the number of units remains unchanged but only the NAV (net asset value) of the units of the main scheme reduces to the extent of the portfolio segregated from the main portfolio.

AMFI also sought uniform tax treatment for between National Pension Scheme (NPS) and Retirement / Pension Schemes of Mutual Funds. Given the maturity of mutual fund industry and its distribution reach mutual funds can provide an appropriate alternative to unorganised sector as majority of NPS subscribers are from government and organised sector. This could be better achieved by aligning the tax structure, it said.

In order to make Gold and Commodity ETFs more attractive, AMFI is proposed to lower the holding period for LTCG (long term capital gain) purposes from 3 years to 1 year, as in the case of listed debt securities.

Gold ETFs and Commodity ETFs are globally popular with over $100 billion in AUM. It has proposed Dividend Distribution Tax exemption to Tax-exempt Institutional Investors like EPFO, NPS, Insurance Companies, non-profit Section 8 companies who invest on behalf of their investors / contributors/ policyholders in Mutual Funds schemes or Infrastructure Debt Funds of Mutual Funds.

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