Budget 2016: Should offer pension tax break u/s 80CCD for mutual funds

Union Budget 2016 can offer various tax incentives to mutual funds in order to expand financial inclusion programme.
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Feb 15, 2016, 01.58 PM | Source: Moneycontrol.com

Budget 2016: Should offer pension tax break u/s 80CCD for mutual funds

Union Budget 2016 can offer various tax incentives to mutual funds in order to expand financial inclusion programme.

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Budget 2016: Should offer pension tax break u/s 80CCD for mutual funds

Union Budget 2016 can offer various tax incentives to mutual funds in order to expand financial inclusion programme.

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Jimmy Patel (more)

CEO, Quantum AMC | Capital Expertise: Mutual Funds

Jimmy Patel
Quantum Mutual Fund


The Union Budget 2016 is around the corner and it’s that time of the year when we all look forward with eagerness to know what’s in store for each of us in the Finance Minister’s bag/suitcase. I’d like to present my wishlist for the mutual funds industry for Budget 2016 –

•Enhanced tax benefits for investments

Presently section 80C giving tax break of up to Rs 1, 50,000 is crowded with too many options and ELSS is one of them. By offering an altogether dedicated section for it I believe ELSS will receive an automatic boost and many investors will be attracted to it. This would bring the much needed domestic funds to the capital markets and also inculcate the habit of investing in market oriented, growth assets among households.

Also investors are now allowed for exemption in capital gains tax under section 54EC. This benefit now could be extended to mutual funds who in turn will invest in infrastructure sector, so that investors can save more tax and more money is pushed into mutual funds and improve the infrastructure sector.

•Pension tax break u/s 80CCD for Mutual Funds

Presently the National Pension System (NPS) is for citizens aged between 18 to 60 years, on a voluntary basis. Currently only investments made through NPS up to Rs. 50,000 a year is allowed to deduction under section 80CCD of the Income Tax Act, 1961. This is over and above Rs. 1.5 lakh a year under section 80C.

In my view investments through mutual funds managing pension plans should also be allowed to get deduction under section 80CCD. Moreover, very few pension plans by mutual fund get a nod from Central Board of Direct Taxes (CBDT). I believe investments in equity market through mutual funds over a long period as suited for a pension plan could allow investors to make the most of the rising market. Therefore the CBDT should get rid of the cumbersome process and could look at an auto-approval methodology that welcomes more MF schemes for investors.

•Jan Dhan Yojana to include mutual funds

Many changes have been made by the government to its Jan Dhan Yojna, in a quest to bring financial inclusion. Earlier in 2011 another similar initiative called Swabhimaan, was started by the government. Recently the government has started working on it plans to allow more free ATM transactions for certain types of accounts as part of its drive to deepen financial inclusion through the spread of cash-vending machines.

So, while the government is taking its small steps to make this initiative successful, in my view Mutual Funds should be a part of this program. This will help in mutual fund penetration and an ease of access to mutual fund investments for investors. More of Indian households should participate in the capital markets. This can be channelized through mutual funds. More inflow from domestic side should also help offset volatile FII money.

•Favourable tax treatment for Equity Fund of Funds

Equity mutual fund, which is a fund that invests in multiple other equity funds, is presently not favoured by many investors due to the reason that they do not enjoy the same treatment as other equity funds.


Schemes

Equity schemes

Equity fund of funds

Tax on Capital Gains

Long Term

Short Term

Long Term

Short Term

Nil

15%

20% with Indexation

Maximum 30%



When the underlying securities are equity ideally the Fund of Funds too should be counted as an equity fund. This is a matter mutual funds have been hopeful of for much long. This budget, we hope, will make it come true.

•Boost for technology adoption by mutual funds for financial inclusion

Financial inclusion is all about the delivery of financial services at affordable costs to sections of the disadvantaged and low income segments of the society, as per the RBI. With the advent of the internet penetration, and as the penetration of handheld devices like smart phones and tablets increases, more people can start transacting online to purchase/redeem funds without the need for visiting a physical office. Technology and digitalization is making its way in the financial sector. In an era where the leaders of the nation are urging on national e-governance plans by giving approval for Digital India program, we could expect some announcements that will help to take the dream of financial inclusion to the next level and hence make investments through mutual funds easier.

•AMCs by individuals

In the banking sector RBI licensed individuals to operate small finance banks & payments banks to carry forward the regulator's objective of deepening financial inclusion. In the mutual fund industry too, by allowing eligible individuals to start an AMC we will encourage both individuals and investors to invest in mutual fund schemes in India. With more and more good and honest players in the industry, investors will have quality mutual fund schemes & services to choose from. In the US some of the large fund houses today were initially started by individuals. Vanguard and Templeton, both mammoth fund houses, were started by John Bogle and Rupert H. Johnson, Sr. respectively.

From the upcoming union budget I look forward for some positive reforms and incentives from the finance ministry that will facilitate individuals to start an AMC.

I have high hopes that this Budget will broaden the scope of financial inclusion by giving due emphasis to the mutual fund industry which will help us offer better services and get more & more people invested in mutual funds.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.
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