The Association of Mutual Funds of India (AMFI), in its proposals for Union Budget 2024, called for a relaxation in taxation of Debt-oriented mutual funds, revisions of the definition of fund-of-funds schemes, and permission to launch tax-friendly pension-oriented mutual fund schemes.
Tax Concessions in Debt Mutual Funds
Capital gains on redemption of units of Debt-oriented mutual funds held for over 3 years should be taxed at the rate of 10 per cent without indexation, as applicable in respect of debentures.
Post amendment in Finance Act, 2023, Debt mutual funds are considered short-term capital assets irrespective of holding period and will be taxed at applicable rates. India needs a well-functioning debt market to support its economic growth and to bring more private investments. An active bond market can lower the cost of long-term finance and attract retail investors, AMFI rationalised its call for tax relaxation.
Equity Oriented Funds Should include FOFs investing in EOFs
AMFI has proposed revisions to the definition of "Equity Oriented Funds". It suggests that fund-of-funds schemes investing a minimum of 90 per cent in units of Equity Oriented Mutual Fund Schemes, which in turn invest a minimum of 65 per cent in listed domestic equity shares should be classified as EOFs.
In this way, they should be subjected to the same capital gains tax as applicable to listed equity securities or units of Equity Oriented Mutual Fund Schemes. Sebi’s “Long Term Policy for Mutual Funds” says the tax treatment should be the same in cases when the underlying portfolio of investments includes domestic equities only, AMFI reminded.
Uniform Tax Treatment for Pension-Oriented MF Schemes
AMFI also recommends that SEBI-registered mutual funds be allowed to launch pension-oriented schemes namely, ‘The Mutual Fund Linked Retirement Scheme’ (MFLRS)' with the same tax benefits as the National Pension System to ensure a level playing field and to bring pension benefits to millions of Indians in the unorganized sector.
AMFI wants tax benefits under Section 80CCD of the Income Tax Act to be extended to such mutual funds.
Select Mutual Funds Should Get LTCG under Sec. 54 EC
AMFI proposed that mutual fund units invested in specified infrastructure subsectors should qualify for tax exemption on Long-Term Capital Gains under Sec. 54EC, with a 3-year lock-in period.
The government's plans to boost infrastructure investment require massive funding and will not be adequately funded by bonds issued by REC or NHAI, AMFI reasoned the need for making the mutual funds more tax-friendly.
Parity in Taxation on Gold and Gold ETF Mutual Funds
AMFI also proposed aligning the tax treatment of Gold ETFs with physical gold to encourage investments in Gold ETFs. “Taxation for Commodity Funds or ETFs should be made more attractive to reduce dependence on imports of physical,” AMFI said.
Uniform Rate for NRI Surcharge on TDS
AMFI suggests prescribing a uniform rate for deduction of surcharge on Tax Deducted at Source (TDS) in respect of dividends from mutual fund units to Non-Resident Indians (NRIs).
This will mitigate NRI investors' hardships, and bring uniformity amongst mutual funds in compliance with the TDS obligation and will ease the TDS compliance burden for the mutual funds, AMFI said.
