The Association of Mutual Funds in India (AMFI) wants the government to allow introduction of debt linked savings scheme to deepen the bond market and bring parity in terms of tax treatment for pension and retirement schemes of mutual funds and the national pension scheme.
Besides, it also seeks to remove the tax arbitrage between investment products like equity mutual funds and unit linked insurance plans.
As part of its proposals submitted to the government ahead of the Union Budget, the umbrella body of asset management companies of India has stated that a debt linked savings scheme (DLSS) can be introduced on the lines of equity linked savings scheme (ELSS) that will aid in the government’s plans of increasing investment in the infrastructure segment.
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“It is proposed to introduce ‘Debt Linked Savings Scheme’ on the lines of Equity Linked Savings Scheme to channelise long-term savings of retail investors into corporate bond market, which would help deepen the Indian bond market,” the AMFI paper stated.
“At least 80% of the funds collected under DLSS shall be invested in debentures and bonds of companies as permitted under SEBI Mutual Fund Regulations,” it added.
The industry body has further suggested that the government can provide tax benefits for investments up to ₹1.5 lakh in DLSS with a lock-in period of five years, similar to a tax-saving bank fixed deposit.
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The association has further requested the government to do away with the levy of capital gains tax in instances where an investor switches within the same scheme like moving from growth option to dividend or vice versa.
The rationale, as per AMFI, is that a similar switch between different plans of the same ULIP of an insurance company is exempt from such capital gains tax and hence removal of the tax on mutual funds would bring tax parity between MFs and ULIPs.
AMFI has further suggested the government to have a uniform tax treatment for retirement and pension schemes of mutual funds and the NPS, which currently enjoys tax exemptions under Section 80CCD of The Income Tax Act.