Budget Mutual Funds: AMFI Calls For DLSS, Increasing TDS Threshold, LTCG Exemption

The Association of Mutual Funds of India (AMFI), in its document 'Proposals for Union Budget 2024-25', called for increasing the TDS threshold of mutual fund dividends, exemption of long-term capital gains, and introduction of Debt Linked Savings Scheme (DLSS).

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The five proposals covered in this article are in addition to proposals covered here

Increase TDS Threshold on Mutual Fund Dividends

The threshold limit for withholding tax withholding tax (TDS) on income distribution (dividend) on mutual fund units should be increased from Rs 5,000 to Rs 50,000 p.a. as the current limit is too meagre for individuals in lower income brackets.

Exemption of Long-Term Capital Gains Tax

AMFI proposed to exempt LTCG on listed equity shares or equity-oriented fund schemes if they are held for at least 3 years, or to increase the threshold limit from Rs 1 lakh to Rs 2 lakh in a financial year.

Amendment to ELSS Rule 3A

AMFI proposed an amendment to ELSS Rule 3A to permit any amount to be invested in Equity-Linked Savings Schemes (ELSS), instead of restricting investments to multiples of Rs 500. Many investors choose to switch their investment from other mutual fund schemes to ELSS, often reinvesting the entire redemption amount, which may not be in multiples of Rs 500.

Introduction of Debt Linked Savings Scheme (DLSS)

AMFI proposed to introduce a "Debt Linked Savings Scheme" (DLSS) similar to the Equity Linked Savings Scheme (ELSS) to encourage retail investors' long-term savings in higher credit-rated debt instruments. Investments up to Rs 1,50,000 under DLSS would be eligible for tax benefits under a separate section if they are subject to a 5-year lock-in period.

Relaxation in TDS for These Inoperative PANs

AMFI also requests for clarification in TDS for inoperative PAN cases related to mutual funds. "CBDT should clarify that mutual funds are not required to deduct TDS at higher rates in case PAN becomes inoperative if the PAN was valid when the mutual fund onboarded the investor," AMFI proposals said.