Mutual fund body Amfi calls for roll back of equity tax, STT hike

Says higher tax will disrupt financialisation of savings

The mutual fund (MF) industry on Tuesday called upon the government to roll back the hike in equity MF taxation.

In the latest Budget, the Centre has raised the short term capital gains (STCG) tax on equities from 15 per cent to 20 per cent. The long term capital gains (LTCG) tax was hiked to 12.5 per cent from 10 per cent.

The Association of Mutual Funds in India (Amfi) on Tuesday said the 30 per cent hike in STCG and 25 per cent increase in LTCG could come in the way of financialisation of savings.

"Increasing tax rates on both short term and long-term gains will deter common investors from choosing mutual funds. Less than 5 crore investors invest in mutual funds and the industry has been making consistent efforts to increase this number. Any change in taxation will hamper the efforts to move people from traditional savings to investments," Amfi said.

The association said the changes in tax rates will also affect MF schemes, which use equity derivatives to generate returns.

"Arbitrage funds and equity savings funds mainly use futures and options for hedging as the underlying assets. The available arbitrage has now reduced due to increase in short term capital gain tax. Further, the increased securities transaction tax (STT) on futures will add to the cost of these funds," it added.

For the futures, the STT has been increased from 0.0125 per cent to 0.02 per cent. STT on options has been raised from 0.0625 per cent to 0.1 per cent.

Amfi has also reiterated its demand to reduce the applicable tax on debt funds. It said that they should attract 12.5 per cent LTCG taxation for holding periods of one year and above, as applicable in the case of listed bonds. They are taxed at the investor's slab rate as of now.