 "Funds want to cross lower threshold to equity tag")
The mutual fund (MF) sector wants the government to modify the definition of equity funds to cover those investing at least 50 per cent in equity instruments, from the present limit of 65 per cent.
“Reducing the threshold limit would ensure asset allocation products with equitable risks are promoted, leading to penetration of debt markets and promotion of real balanced portfolios. It will encourage more numbers of investors with lower risk appetite to invest in funds,” goes a note sent by sector representatives to the finance ministry.
“Converting a tax break intended to get money into equities into one that will get money into MFs, including debt, might not be a step in the right direction,” was the reservation of the head of one fund house.
MFs want investments in equity-linked savings schemes to be re-incentivised, either by allowing a deduction of Rs 50,000 under a separate subsection or over and above the existing 80C limit of Rs 1.5 lakh. As of now, only those investing in the National Pension System can claim I-T deductions under 80CCD. Experts believe section 80C is overcrowded -- products such as EPF, PPF, life insurance premia, Ulips, tax saving fixed deposits and home loan repayment.
The sector also wants intra-scheme switches, a switching of investment within the same scheme of an MF, to be exempt from capital gains tax. Currently, switching of investment in units from a growth option to dividend option (and vice versa) within the same scheme constitutes a 'transfer' under section 47 of the Act and is liable for this tax.
MFs want the incidence of Securities Transaction Tax paid by them on sale of equity shares to be abolished or levied only at redemption by the investor. Investors are required to pay on both occasions.
There is a need to include MF units redeemable after three years and whose underlying investments are into infrastructure assets under section 54EC, they contend. Under this section, tax exemption on long-term capital gains is available if these are invested in bonds issued by the National Bank for Agriculture and Rural Development or the National Highways Authority of India, redeemable after three years.
The sector believes there is a need for harmonising the tax treatment on investments in debt-oriented MFs and direct investments in debt securities. A direct investment in a listed debenture is treated as a long-term investment if held for more than 12 months.
However, the holding period in a debt-oriented MF scheme has to be 36 months to be so regarded.
There is also a demand for regarding any fund of funds investing 65 per cent or more of the corpus in equity instruments as equity oriented funds and taxed accordingly.
“The requests will help the sector to deepen its penetration,” said Manoj Nagpal, chief executive, Outlook Asia Capital. “One of the most important drivers for MFs will be SIPs (systematic investment plans) and it is unfortunate the sector hasn’t demanded tax incentives for long-term SIPs.”
MF WISH LIST FOR BUDGET
“Reducing the threshold limit would ensure asset allocation products with equitable risks are promoted, leading to penetration of debt markets and promotion of real balanced portfolios. It will encourage more numbers of investors with lower risk appetite to invest in funds,” goes a note sent by sector representatives to the finance ministry.
“Converting a tax break intended to get money into equities into one that will get money into MFs, including debt, might not be a step in the right direction,” was the reservation of the head of one fund house.
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The sector has reiterated a demand that investment in retirement or pension schemes offered by MFs up to ·1.5 lakh be allowed a tax exemption under Section 80CCD of the Income Tax Act, instead of section 80C, with exempt-exempt-exempt status. Accordingly, where there are matching contributions by an employer, the total of employer and employee contributions should be taken into account for calculating tax benefits under 80CCD.
MFs want investments in equity-linked savings schemes to be re-incentivised, either by allowing a deduction of Rs 50,000 under a separate subsection or over and above the existing 80C limit of Rs 1.5 lakh. As of now, only those investing in the National Pension System can claim I-T deductions under 80CCD. Experts believe section 80C is overcrowded -- products such as EPF, PPF, life insurance premia, Ulips, tax saving fixed deposits and home loan repayment.
The sector also wants intra-scheme switches, a switching of investment within the same scheme of an MF, to be exempt from capital gains tax. Currently, switching of investment in units from a growth option to dividend option (and vice versa) within the same scheme constitutes a 'transfer' under section 47 of the Act and is liable for this tax.
MFs want the incidence of Securities Transaction Tax paid by them on sale of equity shares to be abolished or levied only at redemption by the investor. Investors are required to pay on both occasions.
There is a need to include MF units redeemable after three years and whose underlying investments are into infrastructure assets under section 54EC, they contend. Under this section, tax exemption on long-term capital gains is available if these are invested in bonds issued by the National Bank for Agriculture and Rural Development or the National Highways Authority of India, redeemable after three years.
The sector believes there is a need for harmonising the tax treatment on investments in debt-oriented MFs and direct investments in debt securities. A direct investment in a listed debenture is treated as a long-term investment if held for more than 12 months.
However, the holding period in a debt-oriented MF scheme has to be 36 months to be so regarded.
There is also a demand for regarding any fund of funds investing 65 per cent or more of the corpus in equity instruments as equity oriented funds and taxed accordingly.
“The requests will help the sector to deepen its penetration,” said Manoj Nagpal, chief executive, Outlook Asia Capital. “One of the most important drivers for MFs will be SIPs (systematic investment plans) and it is unfortunate the sector hasn’t demanded tax incentives for long-term SIPs.”
MF WISH LIST FOR BUDGET
- Threshold limit of equity schemes be reduced to 50 per cent from existing 65 per cent to ensure promotion of asset allocation products
- Tax exemption in retirement or pension schemes be brought under Section 80ccd instead of Section 80c
- Investments in ELSS be allowed a deduction of Rs 50,000 under a separate subsection or over and above the existing 80c limit of Rs 1.5 lakh
- Intra-scheme switches be exempt from payment of capital gains tax
- Three-year units whose underlying investments are into infrastructure assets be brought under section 54ec
- Incidence of STT being paid by MFs on sale of equity shares be abolished altogether or levied only at the time of redemption by the investor