Budget 2024: AMFI Advocates NPS-Like Tax Incentives for Pension Schemes
The Association of Mutual Funds in India (Amfi) has presented a series of proposals to the Finance Ministry, urging for tax incentives akin to the National Pension System (NPS) on pension-focused mutual fund schemes, termed Mutual Fund Linked Retirement Schemes (MFLRS).
Amfi's recommendations highlight aligning the tax treatment of MFLRS with NPS under Section 80CCD of the Income Tax Act, 1961. This move aims to encourage retirement planning through mutual funds by offering comparable tax benefits.
Additionally, Amfi proposed a tax rate of 10% without indexation on capital gains from the redemption of debt-oriented mutual funds held for more than three years, similar to the treatment of debentures. This proposal seeks to streamline tax regulations for debt funds, enhancing investor clarity and market participation.
The industry body also called for a review of the short-term capital gains tax imposed on debt-oriented mutual funds with up to 35% equity exposure last year, aiming to provide a conducive investment environment.
Amfi's Budget proposals included amendments to Section 50AA of the Finance Act, 2023, aiming to align the tax treatment of debt funds with debentures and government securities. Currently, capital gains on these funds held for over three years are taxed at 10% without indexation, reflecting efforts to bolster retail investor participation in the bond market.
In a bid to expand investment avenues, Amfi suggested introducing a 'Debt Linked Savings Scheme' (DLSS) modeled after the Equity Linked Savings Scheme (ELSS). This initiative seeks to attract retail investors towards higher credit-rated debt instruments while offering appropriate tax benefits, thereby contributing to the depth of the bond market.
Amfi's proposals underscore their commitment to enhancing the attractiveness of mutual funds as viable retirement planning tools and fostering a more favorable tax environment for debt-oriented investments.
These proposals, if implemented, are poised to reshape the landscape of retirement planning and mutual fund investments in India, aligning with broader economic goals of promoting financial inclusion and market participation among retail investors.
