Budget 2020: Here’s what the mutual fund industry hopes for

The Association of Mutual Funds in India (AMFI) has sent a long budget wishlist to the finance ministry that includes many demands that were not addressed in the past.

For the debt schemes, AMFI has again proposed for the Debt Linked Savings Scheme (DLSS), much like the Equity Linked Savings Schemes (ELSS) to come into play and that investments up to Rs 1.5 lakh should be eligible for tax benefit with a 5-year lock-in.

AMFI has also requested clarity regarding the side-pocketing rule saying the move is undertaken to protect investor interest in the case of a credit event. As of now, if a security or a paper moves into the side-pocket or the segregated portfolio, when there is a recovery, it is subject to short term capital gains tax.

They have also proposed to do away with the long term capital gains (LTCG) and have suggested to recognize equity mutual funds as ‘specified long term asset, which does not attract LTCG and channelise at least some of the gains from the sale of immovable property into the capital markets. On gold and commodity exchange-traded fund (ETFs), the ask is to lower the holding period to 1 year from 3 years, similar to listed debt securities.

Dividend distribution tax is another big ask. For equity mutual funds, they have asked that the category be brought at par with Unit Linked Insurance Plan (ULIP), as ULIPs do not pay tax on the bonus declared, which is similar to dividends in a mutual fund.

Likewise, ‘EEE’ or ‘exempt exempt exempt’ status of debt schemes under Section 80CCD with an overall ceiling of Rs 1.5 lakh. They have also asked for an exemption for Employees’ Provident Fund Organisation (EPFO), National Pension Scheme (NPS), insurance companies and so on who invest in equity mutual funds. Again, on the securities transaction tax (STT), ‘EEE’ status is sought for equity mutual funds.

Finally, they have also asked that intra-scheme switches within a fund house should be exempt from payment of capital gains tax.

Discussing the likelihood of the above wishes coming through in the budget, Alok Agarwal of Deloitte India said, from an individual perspective one of the key expectations would be that the Rs 1 lakh limit, over which you have to pay the 10 percent LTCG tax is on the lower side and that could be reconsidered because for individuals who are invested in the equity instruments, one year may be short relatively. However, if they are holding these investments for longer than that, then they should be eligible for a better tax treatment. So perhaps there could be an increase in that Rs 1 lakh threshold so that they do not get slapped with a 10 percent tax as soon as they have gains exceeding Rs 1 lakh.”

Agarwal further added that there is limited scope to cut taxes directly.  “However, there is hope for some rationalization on the tax slabs again in-line with some of the recommendations made by several tax committees. There may be some relaxation at the 20 percent slab which kicks in from the Rs 5 lakh to the Rs 10 lakh slab and there is always scope for the 30 percent slab rate as well exceeding Rs 10 lakh and that Rs 10 lakh may be increased to maybe Rs 20 lakh.”

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