Budget 2024: AMFI requests govt to permit pension-focused schemes with NPS-like tax benefits
AMFI wants the government to take a further step in Budget 2024 as it has requested that Centre allow mutual funds to offer pension-focused schemes-Mutual Fund Linked Retirement Schemes (MFLRS)-with similar tax benefits as the National Pension System (NPS).
Budget 2024: When it comes to income tax saving options among mutual funds, only Equity Linked Saving Scheme (ELSS) category stands out as these funds provide Rs 1.50 lakh tax benefits under Section 80C of the Income Tax Act, 1961. However, Association of Mutual Funds in India (AMFI) wants the government to take a further step in Budget 2024 as it has requested that the government allow mutual funds to offer pension-focused schemes—Mutual Fund Linked Retirement Schemes (MFLRS)—with similar tax benefits as the National Pension System (NPS).
AMFI has sent a 16-point proposal to the Finance Ministry, proposing that the tax treatment for NPS and retirement/pension-oriented schemes launched by Mutual Funds should be aligned by bringing the latter also under Section 80CCD.
The mutual fund body has also proposed to introduce 'Debt Linked Savings Scheme (DLSS)' on the lines of Equity Linked Savings Scheme (ELSS) to channelise long-term savings of retail investors into higher credit-rated debt instruments with appropriate tax benefits, which will help in deepening the bond market.
Among other proposals, the national mutual fund body has urged the government that capital gains on redemption of debt-oriented mutual funds held for more than three years should be taxed at the rate of 10 per cent without indexation, as applicable in respect of debentures.
It has requested the government reconsider the short-term capital gains tax imposed last year on debt-oriented mutual funds with equity exposure of up to 35 per cent.
AMFI has also proposed an amendment to Section 50AA of the Finance Act, 2023, to promote retail investor participation in bond markets through debt funds by aligning their tax treatment with that of debentures and government securities.
At present, capital gains on these instruments, when held for over three-year period, are taxed at 10 per cent without indexation, with the holding period reduced to 12 months for listed debentures.
Prior to the introduction of Section 50AA, these mutual fund schemes benefited from both indexation and a lower long-term capital gains tax rate if held for more than three years.
However, they are now classified as short-term capital assets regardless of the holding period.
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