Budget 2022: MF industry seen benefiting with digital assets under tax net

Move will help more millennials come into MF fold; asset management companies also welcome surcharge rationalisation

The Finance Minister's announcement to tax virtual digital assets is seen as a boost to the Rs 38-trillion mutual fund (MF) industry, as it will help more millennials come into its fold. Officials in the asset management industry also welcomed the announcement of surcharge rationalisation.

"Despite the popular expectation of tax concessions for middle-class income-tax payers to push higher domestic savings, this budget has been different in not changing tax rates or slabs. Taxation on gains from the digital asset will help curb speculation and should help channelise savings into well-regulated long-term investments like MF," said Vishal Kapoor, CEO, IDFC AMC.

In its Budget speech on Tuesday, the Finance Minister has proposed that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.

Further, in order to capture the transaction details, it was also proposed to provide for tax deducted at source (TDS) on payment made in relation to transfer of virtual digital assets at the rate of 1 per cent of such consideration above a monetary threshold.

MF players say that until now many investors used to invest in 'crypto currency' as there was no proper taxation structure. With this announcement it makes sense to book the profits in the virtual digital assets and move the money into financial assets like mutual funds.

Further in the Budget it was proposed to cap the surcharge on long term capital gains arising on transfer of any type of assets at 15 per cent. According to the Grant Thornton Bharat, the current rate of surcharge on long term capital gains (LTCGs) arising to any assessee from transfer of equity oriented mutual funds is capped at 15 per cent.

The current rate of surcharge on LTCGs arising from transfer of debt oriented mutual funds depends on the legal status of the taxpayer (i.e. corporate, LLP, co-operatives, individual, HUF etc.) and could go up to 37 per cent.

Mitesh Chauhan, partner, Economic Laws Practice says, "With the proposed amendment, the maximum surcharge rate on long term capital gains on transfer of units of equity and debt mutual funds will be 15 per cent. This is a positive amendment. It will provide a much needed boost to the mutual funds industry."

N S Venkatesh, chief executive at Association of Mutual Funds in India (Amfi) said that  "Proposed cap on the surcharge on long term capital gains arising on transfer of any type of assets at 15 per cent and overall PM Gati-Shakti initiatives are expected to trigger equity markets over a longer term. Equity Mutual Fund Investors will benefit through the slew of measures which will have deep-rooted impact in the times to come."