Amfi May Ask Fm To Consider Mf Dividends Under Section 80l

The Association of Mutual Funds in India (Amfi) has decided to move the finance ministry to bring the diviends paid out by mutual funds under the ambit of income deductible under Section 80L of the Income Tax Act.

The issue came up for discussion at the association's meeting held on Thursday to take stock of the Budget impact on the mutual fund industry.

Under Section 80L, interest on bank deposits, government securities, National Savings Certificates, deposits with approved financial institutions and notified debentures of public sector companies, is deductible from an individual's total annual income of up to Rs 12,000.

The Union Budget for fiscal 2003 announced taxing of dividend income from equity funds and schemes of the UTI at a rate of 10 per cent, which were till now exempted from tax.

Dividends paid by debt funds, which were liable to a flat 10 per cent distribution tax plus surcharge, are proposed to be taxed at the rates applicable to individual investors depending on the annual income.

Amfi chairman A P Kurian fears flight of money from the mutual fund industry as a fallout of the Budget announcement. "If the government goes ahead with the plan to tax dividend income, one may see outflow of money from mutual funds to other investment avenues," Kurian said.

"Amfi seeks to bring the dividend paid by mutual funds under Section 80L and also have the ceiling raised from Rs 12,000 to Rs 15,000. We believe that mutual funds will help mop up the small savings of the households and direct them into the stock markets. The decision to tax dividend income might keep small investors away from the capital markets," he said.