Budget 2024: AMFI urges tax concessions for debt mutual funds, releases 16-point proposal

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The Association of Mutual Fund of India (AMFI) has released 16-point proposal for Union Budget FY 2024-25 requesting tax concessions in debt mutual funds, parity in taxation on gold and Gold ETF MF, and that all mutual funds should be allowed to launch pension oriented MF schemes with uniform tax treatment as National Pension System (NPS).

Here are a few important points made by AMFI in its proposal to the Union Finance Ministry:

1.Request for Tax Concessions in Debt Mutual Funds

AMFI has proposed that capital gains on redemption of units of debt oriented mutual funds held for more than 3 years should be taxed at the rate of 10% without indexation, as applicable in the case of debentures.

“To encourage the retail investor participation in bond markets we request for an amendment to Finance Act, 2023 and consider the mutual fund units as “securities”, with long-term capital tax rate thereon should be according to / in line with the capital gains tax on bonds, debentures, SDL and G-secs etc.,” it said.

2. Request to amend the definition of Equity Oriented Funds to include Fund of Funds investing in Equity Oriented Funds

a. A Fund of Funds (FOF) scheme of a Mutual Fund scheme which invests in the units of other mutual fund schemes:
AMFI proposed that the definition of “Equity Oriented Funds (EOF)” be revised to include investment in Fund of Funds (FOF) schemes which invests a minimum of 90% of the corpus in units of Equity Oriented Mutual Fund Schemes, which in turn invest minimum 65% in equity shares of domestic companies listed on a recognised stock exchange. Consequently, redemption of units in FOF schemes investing 90% or more in EOF should be subjected to the same capital gains tax, as applicable to sale of listed equity securities or units of Equity Oriented Mutual Fund Schemes.The tax treatment should be the same in both the cases as the underlying portfolio of investments include domestic equities only. This will ensure that the intent of the law is not sacrificed. Thus, there is a strong case for parity in taxation between investments in direct equity, Equity Oriented Funds, and Fund of Funds investing in Equity Oriented Mutual Fund Schemes.b. The Finance Act, 2023 introduced a new section 50AA, which states that the gains on “Specified Mutual Fund” shall be deemed as short-term capital gains, irrespective of period of holding and the same will be taxable at the applicable rates:
It is also requested that CBDT may issue an appropriate notification, clarifying that where a mutual fund scheme (including Fund of Fund scheme) that invests more than 35% of the scheme’s AUM directly or indirectly (through investments in equity oriented/other mutual fund schemes (including ETFs)), in equity shares of domestic companies, such mutual fund schemes shall not be covered under section 50AA. In this regard, it is requested to amend the definition of Specified Mutual Fund in the Explanation (ii) of section 50AA of the Act as follows–
“Specified Mutual Fund” means a Mutual Fund by whatever name called and having a specified maturity date, where not more than thirty -five (35)% of its total proceeds is invested directly or indirectly in the equity shares of domestic companies. Provided that the percentage of equity shareholding held in respect of the Specified Mutual Fund shall be computed with reference to the annual average of the daily closing figures.

The proposed amendment will bring required parity in the taxation of the above schemes with that of a fund investing more than 35% of the total corpus in shares of domestic companies directly.c. The Finance Act, 2023 introduced a new section 50AA, which states that the gains on “Specified Mutual Fund” shall be deemed as short-term capital gains, irrespective of period of holding and the same will be taxable at the applicable rates:
A carve out should be provided under the definition of Specified Mutual Fund under section 50AA of the Act to exclude mutual fund schemes investing in overseas mutual fund / ETFs from its ambit.

This would ensure parity, given that the mutual funds are investing more than 35% of their total proceeds in overseas mutual funds/ ETFs which, in turn, invest in equity shares.d. Regulation 2(ma) of SEBI (Mutual Funds) Regulations, 1996 defines “fund of fund scheme” as follows: “2 (ma) Fund of funds scheme means a mutual fund scheme that invests primarily in other schemes of the same mutual fund or other mutual funds”:
It is requested that the words “another fund” provided in the Explanation (a) to section 112A of the Income Tax Act should be replaced with the words “other funds” retrospectively, effective from the date of insertion of the Explanation.

It is expedient for CBDT to clarify that an equity oriented “Fund of Funds” may invest in more than one equity oriented fund schemes (rather than “another fund”) to avoid any ambiguity.

3. All Mutual Funds should be allowed to launch pension-oriented MF schemes (MFLRS) with Uniform Tax Treatment as NPS

i. It is proposed that all Sebi registered MFs should be allowed to launch pension-oriented MF schemes, namely, ‘Mutual Fund Linked Retirement Scheme’ (MFLRS), with similar tax benefits as applicable to NPS under Sec. 80CCD (1) & 80CCD (1B) of Income Tax Act, 1961, with ExemptExempt-Exempt (E-E-E) status on the principle of similar tax treatment for similar products.

ii. In other words, it is also proposed that the tax treatment for NPS and Retirement/Pension oriented schemes launched by Mutual Funds should be aligned by bringing the latter also under Sec. 80CCD of IT Act, 1961, considering that the characteristics of both are similar.

iii. Where matching contributions are made by an employer, the total of Employer’s and Employee’s contributions should be taken into account for calculating tax benefits.

iv. Contributions made by employer should be allowed as an eligible ‘Business Expense’ under Section 36(1) (iv a) of Income Tax Act,1961.

v. Likewise, contributions made by the employer to MFLRS Schemes up to 10% of salary should be deductible in the hands of employee, as in respect of Section 80 CCD (2) of the Income Tax Act, 1961.

vi. Withdrawals made from MFLRS should be exempt from income tax upto the limits specified for tax exempt withdrawals from NPS as in section 10(12A) and 10(12B) of the Income Tax Act, 1961.

vii. It is also requested that CBDT, in consultation with SEBI, should issue appropriate guidelines / notification in this regard as has been done in respect of ELSS, obviating the need for each Mutual Fund to apply individually to CBDT to notify its MFLRP as being eligible for tax benefit u/Sec.80CCD.

There is a very strong case for bringing Mutual Funds Retirement Benefit / Pension Schemes under Sec. 80CCD instead of Sec.80C to bring parity of tax treatment for the pension schemes and ensure level playing field. Going forward, pension funds will emerge as sources of funds in infrastructure and other projects with long gestation period, as well as for providing depth to the equity market (perhaps looking for absorbing stocks arising out of disinvestment program of the government).

4. Taxability of long-term capital gains under section 112A of the Act

  • It is requested that the LTCG on listed equity shares or units of equity-oriented fund schemes be exempted from Capital Gains tax if the equity shares / Mutual Funds Units are held for at least 3 years by suitable amendments to section 112A, while other tax provisions under the said section may be continued as it is.


  • Alternatively, it is proposed to increase the existing threshold limit to ₹ 2 lakhs in a financial year.

The existing threshold limit of Rs 1 lakh in a financial year is very low. Exemption from LTCG tax after a 3 years holding period will encourage long term investments in equities and will help channelize more household savings into the equity markets, thus helping the Indian economy.

5. Request for relaxation to the mutual funds in case of deduction of TDS for inoperative PAN cases

It is requested that CBDT should clarify that mutual funds are not required to deduct TDS at higher rates in case PAN becomes inoperative if the PAN was valid when the investor was onboarded by the mutual fund AMCs.

Clarification in this regard from CBDT will mitigate the hardship for individual investors and also reduce compliance burden for mutual fund AMCs.

The other proposals submitted by AMFI includes –

  • Mutual Fund Units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on LTCG under Sec. 54 EC
  • Request for Parity in Taxation on gold and Gold ETF Mutual Funds,
  • Need to further simplify taxation provisions of offshore funds managed by Indian Portfolio Managers
  • Request for extending the exemption provided for mutual funds under section 10(23D) to Corporate Debt Market Development Fund (CDMDF)
  • Request to prescribe a uniform rate for deduction of Surcharge on TDS in respect of NRIs
  • Increase in threshold limit of withholding tax (TDS) on Income distribution by Mutual Fund scheme
  • Request for amendment to ELSS Rule 3A to permit any amount to be invested in the scheme, instead of in multiples of Rs 500
  • Request to introduce Debt Linked Savings Scheme (DLSS) to help deepen the Indian Bond Market
  • GST Compliances on Securities Lending & Borrowing
  • Reversal of Input Credit under section 17(2) towards Capital Gain on MF Units
  • Sale of mutual fund units should not be regarded as Exempt service liable for reversal under Rule 42 of CGST Rule