Budget 2023-24: Mutual fund body seeks ELSS-like debt products

MUMBAI: Mutual funds industry trade body Amfi has proposed to the finance minister to allow fund houses to launch debt-linked saving schemes (DLSS) that would allow investors tax benefits, thereby deepening the bond market. Similar schemes are available in the equity space called equity-linked savings schemes (ELSS). Amfi has suggested that fund houses should be given approval to launch pension-oriented MF schemes (MFLRS) with uniform tax treatment as it’s available under NPS.

In its Budget proposal, Amfi has asked the government to change the income tax laws so that there is uniformity in definitions of long-term capital gains (LTCG) for listed debt securities and that of debt mutual fund (MF) schemes. It also requested the government to lower the holding period in gold and commodity ETFs to one year for calculation of LTCG and the subsequent taxation on it, from three years now.

The trade body proposed to the government to bring unit-linked insurance plans (ULIPs) by life insurers and equity MF schemes on a par in terms of treatment under LTCG rules, mainly to eliminate the tax arbitrages which are available to ULIP holders. It also proposed that MF units be recognised as long-term assets. There are some other proposals by Amfi that aim to bring parity in tax treatment between MF units and other comparable financial products available in the market.

In its proposal, Amfi said that the government should allow the fund industry to launch DLSS which would act as low-cost, lower-risk instruments and will be tax-friendly investment instruments for retail investors. These products would invest in “higher credit rated debt instruments with appropriate tax benefits which will help in deepening the bond market,” it noted. Investments under DLSS should have a five-year lock-in, it said. Investments through ELSS have a three-year lock-in.

It also asked the government to allow fund houses to launch MFLRS, with similar tax benefits as applicable to NPS, with exempt-exempt-exempt (E-E-E) status on the principle of similar tax treatment for similar products. EEE status implies tax benefits while investing, no tax on returns and finally no tax while redemption.