The mutual fund (MF) industry is seeking a slew of relaxations from Finance Ministry in the upcoming Union Budget, including a reduction in the holding period for long-term capital gains (LTCG) in commodity and gold exchange traded funds (ETFs), scrapping of Securities Transaction Tax (STT) for investors in equity funds and ETFs and a reduction in the threshold limit of equity funds back to 50 per cent.
"In order to make gold and commodity ETFs more attractive, it is proposed to lower the holding period for LTCG purposes from three years to one year, as in the case of listed debt securities," Association of Mutual Funds in India said in its 17-point budget wishlist.
Except for a few proposals like the one on gold and commodity ETFs, most of the changes sought by the industry have been represented in the past.
"We are hoping this time our long-pending submissions get addressed, which would help to take the Indian MF industry, not only to the next level of growth, but also help in contributing to making economy stronger," said N S Venkatesh, chief executive of Amfi.
The MF industry has pointed out the differential treatment meted out to equity MF schemes and unit-linked insurance plans (Ulips) even though both are investment products.
The industry wants equity MF schemes to be exempt from LTCG tax, securities transaction tax and dividend distribution tax, similar to tax treatment given to Ulips.
To put MFs at par with retirement products like National Pension Scheme, MFs have sought an extension of tax deduction upto Rs 150,000 (under section 80 CCD) to retirement benefit and pension schemes offered by MFs.
The industry has also proposed doing away with the "long bureaucratic process" that requires each MF to apply to the Central Board of Direct Taxes (CBDT) individually to notify its benefit under section 80 CCD.
The industry has recommended that CBDT, in consultation with the Securities and Exchange Board of India, notify the guidelines giving the framework for MFs to launch Mutual Fund Linked Retirement Plans.
The industry has also sought 'harmonising' the long-term capital gains tax treatment for debt schemes. The industry, in its representation, pointed out that direct investment in listed debentures, if held for more than 12 months, is still treated as long term investment, whereas if the same investment was made through a debt scheme, the period of holding goes up to 36 months for it to be regarded as long-term investment.
The industry has again sought clarity on tax treatment of units held by investors in a segregated portfolio created to deal with a stressed exposure.
The issue is that holding period with respect to sale of units in segregated portfolio will be reckoned from date of segregation instead of original date of investment, in the absence of an amendment in the Income Tax Act.
The industry has also proposed introduction of Debt Linked Saving Scheme, on the lines of Equity Linked Saving Scheme (ELSS), which would also be able to give same tax benefits extended in ELSS.
WHAT THE INDUSTRY WANTS
Framework to allow MF-linked retirement schemes with tax benefits
Lowering of DDT on debt schemes, at least on a par with corporate tax rate of 22%
Removal of tax arbitrage between mutual funds and Ulips
Giving DDT exemption to investors such as NPS, investing on subscribers' behalf