EXCLUSIVE: AMFI hands over Budget wishlist to FinMin; proposes DLSS

Himadri BuchMoneycontrolAs the Union Budget is nearing mutual funds' industry lobby - Association of Mutual Funds in India - has compiled and forwarded the proposals of the industry to the Finance Ministry. Following changes have been proposed:

Debt scheme under Sec 80 CCC

AMFI has proposed debt-linked savings scheme under Sec 80 CCC of Income Tax Act. "We have proposed for debt-linked savings scheme (DLSS) to be included under the Sec 80 CCC 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 CCC 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.

Related stories

Himadri Buch

Assistant Editor|Moneycontrol.com

• 
  Society Tea striving to become a national brand, says Director Karan Shah
• 
  This week in hospitality industry: Night curfew dampens year-end cheer; license fee gives some relie...
• 
  Bar owners welcome Maharashtra government’s move to cut license fee

Make RGESS available for all

AMFI has also proposed to make Rajiv Gandhi Equity Savings available for all and exclusive for mutual fund.

"Remove all restrictions from RGESS and make it exclusive for mutual funds,” the source quoted above said.

The scheme was announced in the 2012-2013 budget. However, it never became popular because of the many restrictions it places on individuals to qualify to make investments in it.

For example, the person's income should be below Rs 12 lakh; one should have or open a demat account to make investment; ones who have invested in stocks can invest, and so on.

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 budget they (Finance Minister) had mentioned about MFLRP (Mutual Fund Long Term Retirmenet Plan) under Section 80 CC (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.

"If this comes with tax incentive then it will help in channelizing 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.

At present, slew of fund houses like Axis, DSP BlackRock, LIC, Pramerica and SBI have filed draft offer documents with SEBI to launch their retirement linked mutual funds and are awaiting approval from CBDT.

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% is invested in equities.

“Fund of Funds should be treated as equity if more than 65 percent is invested in equities 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. Rightnow 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.