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Budget 2019: AMFI proposes level-playing field between ULIPs and MFs

Budget 2019: AMFI proposes level-playing field between ULIPs and MFs
With the upcoming Budget slated to be presented later this week, the Association of Mutual Funds in India has recommended a slew of proposals to Finance Minister Nirmala Sitharaman.
Here are some of the budget proposals of the Association of Mutual Funds in India (AMFI) for FY20.
1) Introduce Debt Linked Savings Scheme (DLSS) to deepen the Indian Bond Market
--Introduce Debt Linked Savings Scheme (DLSS) similar to the Equity Linked Savings Scheme (ELSS) to channelize long-term savings of retail investors into the corporate bond market, which would help deepen the Indian bond market.
-- At least 80 percent of the funds collected under DLSS shall be invested in debentures and bonds of companies as permitted under SEBI Mutual Fund Regulations. Pending investment of the funds in the required manner, the funds may be invested in short-term money market instruments or other liquid instruments or both.
--Investments upto Rs 1,50,000 under DLSS be eligible for tax benefit under Chapter VI A, under a separate sub-Section and subject to a lock-in period of 5 years (just like tax saving bank Fixed Deposits).
-- CBDT (Central Board of Direct Taxes) may issue appropriate guidelines/notification in this regard as done in respect of ELSS.
2) Uniform tax treatment in respect of investments in Mutual Funds Units and ULIPs of Life Insurance companies
a) Request for uniform tax treatment on Switching of Investments under Mutual Fund schemes and ULIPs of Insurance companies
-- It is proposed that in case of Intra-Scheme Switches (i.e., switching of investment within the same scheme of a Mutual Fund) is not regarded as a “Transfer” under Section 47 of the IT Act, 1961 and be exempt from payment of capital gains tax
b) Request for Uniform tax treatment on Capital Gains from Mutual Funds investments and ULIPs of Insurance companies
It is requested to reconsider the matter and exclude the mutual units of equity-oriented mutual fund schemes from the ambit of LTCG tax and maintain status quo ante, insofar as LTCG (Long term capital gains) from equity mutual fund schemes are concerned, keeping the interest of the retail investors and to ensure level playing field between equity mutual fund schemes and ULIPs.
c) Request for removal of Tax Arbitrage between ULIPs & Equity MF Schemes on account of STT
--Abolish STT (Securities Transaction Tax) levied at the time of redemption of Mutual Fund Units by the investor.
d) Tax Arbitrage between ULIPs & Equity MF Schemes on account of DDT (Dividend Distribution Tax)
--Re-consider the matter and abolish the DDT on dividend paid under equity oriented mutual fund schemes maintaining status-quo ante, keeping the interest of the retail investors, and to have a level playing field and uniformity in the taxation of investment in MF schemes and ULIPs of Insurance companies.
-- Eliminate DDT, when mutual funds declare dividends in their respective funds to the extent of dividends received by them from the companies to eliminate double taxation.
3) Uniform Tax Treatment for Retirement / Pension Schemes of Mutual Funds and NPS
-- As in the case of NPS (National Pension Scheme), investment in Retirement Benefit / Pension Schemes offered by Mutual Funds up to Rs 150,000 should also be allowed tax deduction under Sec. Sec 80CCD (1) of Income Tax Act, 1961 (instead of Sec. 80C), within the overall ceiling of Rs 1.5 lakhs under Sec 80 CCE, with E-E-E status.
--Likewise, the additional deduction for investment up to Rs 50,000 under section 80CCD (1B) (presently available to NPS subscribers should be extended to investment in Mutual Fund Retirement Benefit / Pension Schemes, over and above the deduction of Rs 1.5 lakh under section 80C of Income Tax Act,1961.
4) Mutual Fund Units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on Long-Term Capital Gains under Sec. 54 EC
-- Mutual Fund units that are redeemable after three years, wherein the underlying investments are made into equity or debt of ‘infrastructure subsector’ as specified by RBI Master Circular in line with ‘Master List of Infrastructure sub-sectors’ notified by the Government of India, be also included in the list of the specified long-term assets under Sec. 54EC.
--While the underlying investment will be made in securities in infrastructure subsector as specified above, the mutual fund itself could be an equity-oriented scheme or debt-oriented scheme, based on investors’ choice and risk appetite. The investment shall have a lock-in period of three years to be eligible for exemption under Sec. 54EC.
--Alternatively, a new sub-section 54EF be introduced, wherein long term capital gains from mutual funds can be reinvested in other mutual funds (on the same lines and rationale as 54EC for sale transactions in the immovable property) and long term capital gains can be saved by the investor.
5) Mutual Fund Units to be notified for as Long-Term Specified Assets for exemption on Long-Term Capital Gains under Sec. 54 EE
-- Units issued by Mutual Funds that are registered with SEBI, having a lock-in for three years may be notified as “Long term specified assets” under Section 54EE.
Source: Moneycontrol

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