Budget 2024: AMFI’s Ambitious 16-Point Proposal for the Mutual Fund Industry
The Association of Mutual Fund of India (AMFI) has recently stepped forward with an ambitious 16-point proposal for the upcoming Union Budget FY 2024-25. This detailed proposal seeks to revolutionize the mutual fund industry by advocating for significant tax concessions for debt mutual funds, aiming for parity in taxation between gold and Gold ETF Mutual Funds, and proposing that all mutual funds should be empowered to launch pension-oriented schemes with a uniform tax treatment akin to the National Pension System (NPS).
Key Highlights of AMFI’s Proposal
At the heart of AMFI’s proposal is a strong emphasis on tax reforms, which they believe could significantly alter the landscape of the mutual fund industry in India. Here’s a glimpse into the critical points raised by AMFI in its proposal to the Union Finance Ministry:
Tax Concessions for Debt Mutual Funds
AMFI suggests a more lenient tax structure for debt-oriented mutual funds, advocating for a capital gains tax rate of 10% without indexation on the redemption of units held for more than three years, a move aimed to align more closely with the tax treatment of debentures.
Clarifications and Amendments
AMFI extends its proposal to include mutual fund units under the umbrella of “securities”, enabling them to enjoy similar capital gains tax rates applicable to bonds and debentures. Furthermore, AMFI seeks to bring parity in taxation for Fund of Funds (FOFs) that invest predominantly in Equity Oriented Funds (EOFs), suggesting these investments should be subjected to the same capital gains tax applicable to listed equity or EOF schemes.
To counteract the implications of the Finance Act, 2023’s section 50AA on mutual funds, AMFI proposes that schemes investing more than 35% of their AUM in domestic equities or through equity-oriented funds, including ETFs, should not fall under the ‘Specified Mutual Fund’ category, which currently subjects gains to short-term capital gains tax regardless of the holding period.
Enhancements in Pension Oriented Schemes
AMFI proposes allowing mutual funds to launch ‘Mutual Fund Linked Retirement Scheme’ (MFLRS), with tax benefits mirroring those available under NPS, advocating for an Exempt-Exempt-Exempt (E-E-E) status. This includes similar tax reliefs for contributions, growth of investment, and withdrawals, aiming to provide a level playing field between NPS and mutual fund-based retirement plans.
The proposals emphasize the need for parity in the tax treatment of NPS and mutual fund-based pension/retirement schemes. They suggest this alignment could help channel more investments into infrastructure and bolster the equity market by providing a new source of long-term capital.
Other Considerations
The proposal also addresses practical concerns, requesting clarification from the CBDT on TDS obligations for mutual funds, especially in situations where an investor’s PAN might become inoperative. AMFI believes that such clarification would alleviate compliance burdens on mutual fund AMCs and mitigate undue hardship for investors.
Conclusion
AMFI’s comprehensive 16-point proposal showcases a determined effort to refine the mutual fund sector’s regulatory and tax framework, with a keen focus on fostering growth, ensuring fair tax treatment, and promoting long-term investment in the Indian market. If accepted, these suggestions could promote greater inclusivity and efficiency within the mutual fund industry, aligning it with global standards and enhancing its appeal to both domestic and international investors.
As the industry awaits the Union Budget FY 2024-25, stakeholders and investors are keenly observing potential changes that could redefine the future of mutual funds in India.
