AMFI seeks parity in tax treatment of MFs, ULIPs

Mumbai: Association of Mutual Funds in India (AMFI), the industry body of 45 fund houses in the country, has reiterated its long-standing demand to bring parity in tax treatment of Mutual Funds (MFs) and Unit Linked Insurance Plans (ULIPs), both of which are investment products.

Currently, ULIPs which are being offered by life insurers enjoy more tax benefits when compared to mutual funds in various aspects including no capital gains on switching, no STT levied on the withdrawal proceeds and no income tax on the proceeds of insurance companies (including early surrender / partial withdrawals) subject to certain conditions.

To mitigate hardship to retail taxpayers, AMFI, in its recommendations for Budget 2021, has requested that the threshold limit for withholding tax (TDS) on income distribution (dividend) on mutual fund units be increased from Rs 5,000 to Rs 50,000 per annum, and a cap of 15 per cent on surcharge rate on income distribution on units from equity mutual fund schemes in the hands of non-corporate taxpayers.

AMFI, making a case for CPSE investment of surplus funds in Mutual Funds, in its pre-budget proposals to Finance Ministry, has asked to revise the current Department of Public Enterprises (DPE) guidelines, and permit the Maharatna, Navratna and Miniratna CPSEs to invest their surplus fund in any SEBI registered Mutual Fund, irrespective of whether it is a public sector mutual fund or a private sector mutual fund; and enhance the current limit of 30 per cent of available surplus funds for investments in mutual funds by CPSEs to 50 per cent of available surplus funds.

The mutual fund body has also submitted that let there not be any stipulation on any minimum corpus size with respect to the debt scheme as a pre-condition for investments by CPSEs and also rating of only one SEBI-registered Credit Rating Agency be accepted as adequate, instead of existing requirement of any two separate Credit Rating Agencies.

AMFI also wants introduction of 'Debt Linked Savings Scheme' (DLSS) on the lines of Equity Linked Savings Scheme (ELSS) to channelise long-term savings of retail investors into higher credit rated debt instrument with appropriate tax benefits which will help in deepening the Indian Bond Market.

In addition, AMFI has also requested that the onerous conditions under Section 9A of the Act, be further simplified to encourage fund management activity from India and provide safe harbour with respect to offshore funds. AMFI also suggested that some or all the conditions relating to safe harbour need to be deleted for Portfolio Managers/Advisors.

Key expectations of fund houses for the forthcoming Budget

♥ Parity in tax treatment for investments in different financial sectors

♥ Mitigate hardship to retail taxpayers, and

♥ Deepening of capital market through MFs the IFSC, GIFT city, Gujarat