Budget 2020: AMFI Pitches For Debt-Linked Saving Schemes With Tax Benefits In Budget Proposal

The Association of Mutual Funds In India has requested the government to allow low-cost debt-linked saving schemes, with tax benefits, to deepen the bond market and lower holding period in gold and commodity exchange-traded funds to one year from existing three years for long-term capital gains tax purposes.

In its budget proposal to the Finance Ministry, the industry body has also demanded that the government recognise mutual funds as specified long-term assets, qualifying for LTCG, as well as bring unit-linked insurance policies of life insurers and equity MF schemes on par.

The mutual fund body has also asked for dividend distribution tax exemption for Employees' Provident Fund Organisation, National Pension Scheme and insurance companies investing in mutual fund schemes and pass-through status for income tax purpose to those Category III alternate investment funds which make 65 percent investments in listed equities.

"AMFI’s suggestions have been in the Budget proposal list for a few years. We are hoping this time our long pending submissions get addressed, which would help take the Indian MF industry not only to the next level of growth but also help in contributing to making economy stronger, especially with deepening of bond market, making long term availability of funds for infrastructure growth, and reducing the fiscal deficit by shifting investments from pure gold to gold ETFs," AMFI Chief Executive N S Venkatesh said.

Some of the proposals are also aimed at bringing parity with comparable investment avenues and making mutual funds more retail investor-friendly, he added. AMFI said that mutual funds should be allowed to introduce low-cost, lower-risk tax-exemption-linked debt-linked savings schemes on the lines of equity-linked saving schemes.

It further proposed that investments up to Rs 1.5 lakh under DLSS be eligible for a tax benefit, subject to a lock-in period of 5 years. At present, equity-linked savings schemes qualify for tax benefits under Section 80 CCC of the Income Tax Act for an investment limit of up to Rs 1.5 lakh in a fiscal year.

In order to make gold and commodity ETFs more attractive, the industry body has proposed to lower the holding period for LTCG purposes from 3 years to 1 year, as is the case for listed debt securities.

Besides, AMFI has requested clarity in respect of the creation of segregated portfolios in mutual fund schemes, on capital gains tax treatment upon sale of mutual funds units with regard to the treatment of the units allotted consequent on segregation of portfolio.

In addition, it has proposed that the threshold limit in equity-oriented mutual fund schemes be restored to 50 percent. Reducing the threshold limit of equities from 65 percent to 50 percent for being regarded as 'equity-oriented fund' would encourage more investors with lower risk appetite to invest in such funds.

AMFI has also proposed that the definition of equity-oriented funds be revised to include investment in Fund of Funds schemes, which invest predominantly in units of equity-oriented mutual fund schemes.