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Budget 2018
Last Updated : Jan 10, 2018 06:17 PM IST | Source: Moneycontrol.com

Budget 2018: AMFI seeks tax-saving debt funds from Finance Ministry

By extending the tax benefits to debt-based mutual fund schemes, conservative investors will also get an opportunity to avail tax benefits.

Himadri Buch @himadribuch

Himadri Buch

Moneycontrol

As the Union Budget is nearing, mutual fund industry lobby - Association of Mutual Funds in India - has compiled and forwarded the proposals of the industry to the Finance Ministry. The following changes have been proposed:

Debt scheme under Sec 80 C

AMFI has proposed debt-linked savings scheme under Sec 80 C of Income Tax Act. "We have proposed  debt-linked savings scheme (DLSS) to be included under the Sec 80 C limit," said a mutual fund source who is also in the AMFI committee.

Currently, only equity-linked savings schemes (ELSS) qualifies for tax benefits under Section 80 C of the Income Tax Act, for an investment limit of up to Rs 1.5 lakh in a financial year.

By extending the tax benefits to debt-based mutual fund schemes, conservative investors will also get an opportunity to avail tax benefits.

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Introduce Mutual Fund Linked Retirement Plan (MFLRP)

AMFI has also proposed a Mutual Fund Long Term Retirement Plan (MFLRP) similar to the 401(k) plan in the US.

"In the last to last budget they (Finance Minister) had mentioned about MFLRP (Mutual Fund Long Term Retirmenet Plan) under Section 80 C (of Income Tax Act) which SEBI had proposed so we asked Finance Ministry to give a clarification in this budget as to how MFLRP can function," another source from the AMFI committee said.

Also Read: Budget 2018 may raise Section 80 (C) investment limit to Rs 2 lakh a year

"If this comes with tax incentive then it will help in channelising household savings to capital markets specially for long term, the source added.

If implemented, fund houses can launch these retirement products directly by getting approval from SEBI. Currently, fund houses have to take approval of Central Board of Direct Tax (CBDT) to provide tax benefits to investors.

Consider Fund of Funds as equity

The industry association has also proposed the Finance Ministry to consider fund of funds category as equity funds if more than 65 percent is invested in equities.

“Fund of Funds should be treated as equity if more than 65 percent is invested in equities, as currently it is considered as a debt (scheme)," the source said.

Currently, Fund of Funds are treated as debt funds for taxation purpose, whereas those investing 65 percent in equity and equity derivatives are taxed as equity schemes.

Capital gains tax plans

Lastly, AMFI has also pushed the case for extending Sec 54 EC benefit for mutual fund schemes with lock-in period of three-five years.

"We have asked to reintroduce Section 54 EC, allowing mutual funds units also to cover under that section. Right now NHAI bond, REC bond allow lock-in period so that should be extended to mutual fund schemes. Investors can put for a 5 year lock-in to improve the equity appetite in the industry," the source said.

Under Sec 54 EC of the Income Tax Act, investors save on capital gains tax that need to be paid on sale or transfer of long-term capital assets, by investing in National Highways Authority of India (NHAI) bonds.



India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for live Budget 2018 news, views and analyses.
First Published on Jan 10, 2018 05:34 pm
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