(G.N.S) Dt. 11
The mutual fund industry association has sent a record 28 suggestions to the Finance Ministry seeking changes and clarifications in tax laws applicable to mutual funds. This is the largest set of budget proposals that Association of Mutual Funds in India (AMFI) has ever made to the Finance Minister for consideration. The mutual fund industry, on the back of strong growth, wants to be heard this time.
Moneycontrol has seen a copy of the proposed changes and initiated the coverage on the same yesterday. Of these 28 suggested changes, 17 apply to direct taxes and 11 changes are with respect to indirect taxes, specifically GST.
Currently any switch from one scheme to another or within the same scheme qualifies as a sell-buy transaction leading to capital gains. The mutual fund industry has demanded that switches within the same scheme i.e. one from option to another should be exempt from being construed as a transfer and no taxes should be applicable on the same. The mutual fund industry says this will create a level playing field for mutual funds with ULIPs from insurance companies
Equity Oriented Funds are currently exempt from Long Term Capital Gains and Dividend Distribution Tax. The Income Tax Act defines mutual fund schemes which have an average exposure of more than 65 percent to domestic equities.
AMFI has proposed that this should be brought down to 50 percent to ensure that asset allocation products with an equitable risk are also promoted to ensure investors with a lower risk appetite to participate in the market related products.
Listed debentures are treated for long term capital gains if held for more than 12 months whereas if a mutual fund invests in the same, the holding period for the mutual fund has to be at least 3 years to qualify for long term capital gains. Mutual Funds want both of this to be aligned with funds which invest a majority of its assets in listed debt securities and such debt mutual funds should be eligible for long term capital gains if held for more than 12 months.
AMFI has highlighted that mutual funds and ETFs pay STT when they transact on the stock exchanges and in addition an investor also pays STT when they redeem units and when ETFs buy/sell units to authorised participants. This is equivalent to double taxation and mutual funds have proposed that the STT by mutual funds should be done away with.
Clarification that provisions of Sec 115BBDA are not applicable to Mutual funds
Dividends if received in excess of Rs. 10 lakhs, for certain categories of assesses, under Sec 115 BBDA have to be included in the total income for the purpose of taxation. Mutual funds have not been specifically excluded from this provision leading to a confusion amongst some mutual funds with regard to the applicability of the same. AMFI has requested that for the sake of clarification, the Budget should announce the specific exclusion of Mutual Funds from this provision.
These proposals are in addition to the four proposals that MoneyControl team covered yesterday i.e. Launch of Debt Linked Savings Schemes, Alignment of Mutual Fund Linked Retirement Plans and NPS (National Pension System), Inclusion of MFs in Sec 54EC and 54EE and Fund of Funds (FoFs) to treated as Equity Oriented Funds, if the underlying investments are equity oriented in nature.
MoneyControl will bring to you tomorrow more details about the other changes proposed by Mutual Funds both in Direct Taxes and Indirect Tax provisions and how they will impact you as the investor.
(G.N.S) Dt. 11