Mutual Funds

 What AMFI wants for MFs from the Union Budget 2021 

The AMFI has been putting out a list of its expectations to the Finance Minister each year. However, not much appears to have moved on that front. Here are some key expectations that MFs have from the Union Budget 2021. 

Put MFs at par with ULIPs 

This has been a persistent demand of the MF industry. Currently, equity funds are classified as equity for tax purposes so the 10% flat LTCG tax applies to the equity fund gains also. However, ULIPs are exempt from such long-term capital gains which give them an edge over the tradition ELSS schemes in terms of post tax returns. The AMFI wants the status quo to be restored and ELSS schemes put on par with ULIPs in terms of tax treatment of long term gains. 

Inter scheme transfers 

This is another area that has been the bone of contention between AMFI and the tax authorities. In ULIPs, investors are permitted to transfer from one scheme to another scheme without any tax liability. However, in the case of MFs any such transfer from one scheme to another, even of the same fund, will be construed as a sale and capital gains will be applicable. The AMFI has demanded the uniform treatment of ULIPs and MFs in the matter of inter-scheme transfers. This will be useful in financial planning as portfolio tweaks can be done without incurring steep additional charges! 

Bring debt under Section 80C 

While ELSS has been around for some time, one demand from many investors is that a similar facility should be made available for debt funds also. Of course, the regular 3 year lock-in can be applied in this case too. What the AMFI has been demanding is that the scope of ELSS be widened to include debt funds also. In addition, the AMFI has asked for a dedicated exemption limit for mutual funds under Section 80C, considering the kind of robust response in MF flows. 

Time to tweak tax on MFs 

There are a number of tax related issues that mutual fund investors have. Firstly, the dividend on equity funds will also be now taxed as other income in the hands of investors. The contention is that since it is just a distribution of corpus, it will amount to double taxation. Secondly, there have been demands for scrapping the LTCG tax on capital gains on equity funds. Today, equity funds are taxed at 10% above Rs.1 lakh on annual capital gains. This is forcing unnecessary profit booking by long term investors, just to save tax. Then there is the issue of STT that is charged on equity funds when they are redeemed. This is unfair as ULIPs are not subject to STT and that again puts ELSS at a disadvantage. Lastly, there is also the demand to re-introduce Section 54EC benefits for long term capital gains reinvestment. It is hoped the budget will make a start!