AMFI seeks same tax treatment for mutual funds as enjoyed by ULIPs

Our Bureau Mumbai | Updated on December 24, 2020

The Association of Mutual Funds in India has reiterated its long-standing demand to bring parity in tax treatment of mutual funds and Unit Linked Insurance Policies, both of which are investment products and invest in securities.

Currently, ULIPs enjoy more tax benefits as compared to mutual funds in various aspects like no capital gains on switching, no STT (securities transaction tax) levied on the withdrawal proceeds from ULIPs, no income tax on the proceeds from ULIPs of insurance companies (including early surrender and partial withdrawals) subject to certain conditions.

TDS proposal

In a pre-budget recommendation to the government, AMFI has requested that the threshold limit for withholding tax (TDS) on income distribution (dividend) on mutual fund units be increased from ₹5,000 to ₹50,000 per annum, and a cap of 15 per cent on surcharge rate on income distribution on units from equity mutual funds in the hands of non-corporate taxpayers.

Making a case for CPSE investment of surplus in MFs, AMFI has asked to revise the current Department of Public Enterprises guidelines, and permit the Maharatna, Navratna and Miniratna CPSEs to invest their surplus fund in any SEBI registered MF, irrespective of whether it is a public sector or a private sector and enhance the current limit of 30 per cent of available surplus for investments in CPSEs to 50 per cent.

AMFI wants to remove the stipulation on any minimum corpus size in respect of the debt scheme as a pre-condition for investments by CPSEs and also rating of only one SEBI-registered credit rating agency (CRA) be accepted as adequate, instead of existing requirement of any two separate CRAs.

‘Introduce DLSS’

AMFI once again furthered its suggestion of introducing Debt Linked Savings Scheme on the lines of Equity Linked Savings Scheme to channelise long-term savings of retail investors into higher credit rated debt instruments with appropriate tax benefits which will help in deepening the bond market.

AMFI has also requested that the onerous conditions under Section 9A of the Act, be further simplified to encourage fund management activity from India and provide safe harbour in respect of offshore funds.

Published on December 24, 2020

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