National Pension System-like tax rules for mutual funds and DLSS in AMFI’s 2022 budget wish list


Mutual Fund Budget 2022 Expectations: Retirement/retirement-focused mutual fund plans are eligible for a tax benefit of less than 80C, when specifically notified by CBDT.

Budget 2022 expectations for mutual funds: In anticipation of the upcoming Union budget, the Association of Mutual Funds in India (AMFI) has proposed to the government to allow mutual funds to launch pension-focused schemes with uniform tax treatment in as the National Pension System (NPS). It also proposed the introduction of the Debt Linked Savings Scheme (DLSS) on the model of the Equity Linked Savings Scheme (ELSS).

Currently, three types of investment avenues are available for post-retirement retirement income in India – NPS, superannuation/retirement schemes offered by mutual funds and insurance-linked pension schemes offered by insurance companies.

An additional tax deduction of Rs 50,000 is available for investment in NPS. This is above the limit of Rs 1.5 lakh under Section 80C. However, retirement/retirement oriented mutual fund schemes are eligible for a tax benefit under 80C, that too when specifically notified by CBDT.

READ ALSO | Increase in NPS Additional Deduction Limit from Rs 50,000 to Rs 1 Lakh in Budget Wish List

Under the current, mutual fund pension plans must be notified by the CBDT to receive a tax benefit under Section 80C. AMFI said CBDT does this on a case-by-case basis, which involves a lengthy and time-consuming process.

“Thus, currently only a handful of mutual fund pension/retirement plans that have been specifically notified by the CBDT are eligible for the tax benefit under Section 80C,” AMFI said in its statements. proposals for the 2022-23 budget.

Budget 2014-15 and even SEBI had previously proposed the introduction of a Mutual Fund Linked Retirement Plan (MFLRP) with similar tax treatment as the NPS.

“It is proposed that all SEBI-registered mutual funds be permitted to launch pension-focused MF schemes, namely the Mutual Fund Linked Retirement Scheme (MFLRP), with tax benefits similar to those applicable to the NPS under Section 80CCD(1) and 80CCD(1B) of the Income Tax Act 1961, with exempt-exempt-exempt (EEA) status on the principle of ‘similar tax treatment for similar products,’ AMFI said.

Justifying its request, AMFI stated:

  • Allowing mutual funds to launch MFLRS would bring retirement benefits to millions of Indians in the unorganized sector.
  • Empirically, tax incentives are essential for channeling long-term savings. For example, the mutual fund industry in the United States grew exponentially when tax incentives were announced for retirement savings. Market-linked retirement planning has been one of the turning points in high-quality retirement savings around the world. Investors have choice in plan selection and flexibility.
  • A long-term product like MFLRS can act as a catalyst by channeling household savings into the securities market and providing greater depth.

Debt-Linked Savings Scheme (DLSS)

AMFI has also called on the government to introduce DLSS to help “deepen the Indian bond market”.

It is proposed to introduce the Debt Linked Savings Scheme (DLSS) modeled after the Equity Linked Savings Scheme (ELSS) to channel retail investors’ long-term savings into higher rated debt securities with Appropriate tax benefits that will help deepen the Indian bond market.

AMFI further stated that DLSS will provide an alternative fixed income option with tax relief to retail investors and help retail investors participate in bond markets at lower cost and lower risk compared to equity markets.

It will also put debt-focused mutual funds on a par with tax-saving bank term deposits, where the deduction is available under Section 80C, he added. .

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