The Association of Mutual Funds in India (AMFI) has proposed 13 recommendations to the finance ministry ahead of the Union Budget 2025. These proposals aim to strengthen investor confidence, promote deeper participation in the mutual fund sector, and address key tax-related issues crucial for mutual funds and investors.
Key AMFI Proposals for Union Budget 2025
AMFI has proposed reinstating the indexation benefits for long-term capital gains (LTCG) on debt mutual funds, which were withdrawn in Budget 2024. This would enable investors in debt mutual funds to benefit from the inflation-adjusted acquisition cost when calculating capital gains, making them more attractive as an investment avenue.
- Rollback of Increased Tax Rates
A key request from AMFI is the rollback of the recent increase in tax rates on short-term and long-term capital gains. AMFI advocates restoring the tax rates to the previous levels of 15% for short-term and 10% for long-term capital gains. This change would align the taxation of mutual funds with other asset classes, helping foster investor confidence.
- Inclusion of Funds of Funds (FoFs) under Equity-Oriented Category
AMFI has recommended that Funds of Funds (FoFs) investing at least 90% of their assets in equity-oriented funds be included under the equity-oriented category for tax purposes. This classification would allow such funds to avail of the benefits provided to equity funds, enhancing their appeal among investors looking for exposure to diversified equity portfolios.
- Pension-Oriented Mutual Fund Schemes
The association has proposed that SEBI-registered mutual funds be allowed to launch pension-oriented schemes with tax benefits similar to those offered under the National Pension Scheme (NPS) under Section 80CCD. This would create additional avenues for investors to save for retirement while encouraging the development of pension products in the mutual fund industry.
- Capital Gains Tax Exemption for Mutual Funds in Infrastructure
AMFI has suggested that mutual funds investing in priority sectors such as infrastructure be allowed to qualify as specified assets under Section 54EC, making them eligible for capital gains tax exemptions. This would incentivize investments in critical infrastructure sectors, contributing to economic growth.
- Easing Conditions for Offshore Funds
To attract offshore funds managed by Indian portfolio managers, particularly in International Financial Services Centres (IFSCs), AMFI has proposed relaxing the conditions under Section 9A. This would make it easier for foreign investors to invest in Indian mutual funds, thus bringing more capital into the market.
- Flat Surcharge on TDS for NRIs
AMFI has recommended a flat surcharge rate of 10% on tax deducted at source (TDS) for dividends and capital gains from mutual fund units for non-resident Indians (NRIs). This move aims to streamline the tax process for NRIs and encourage more foreign investment in Indian mutual funds.
- Relaxation of ELSS Investment Requirements
The association has urged the removal of the restriction requiring investments in Equity-Linked Savings Schemes (ELSS) to be made in multiples of Rs 500. This change would enhance the accessibility of ELSS for retail investors, making it easier for them to invest in these tax-saving instruments.
- Increase in Withholding Tax Threshold
AMFI proposes raising the threshold for withholding tax on income distributions from mutual funds from Rs 5,000 to Rs 50,000 per annum. This would reduce the compliance burden on investors and fund houses, making it easier for smaller investors to benefit from mutual fund income without worrying about tax filing complexities.
- Differentiated LTCG Tax Rates for Equity Investments
AMFI recommends introducing differentiated Long-Term Capital Gains (LTCG) tax rates for equity investments. Specifically, it suggests a 10% tax rate for equity investments between 1 and 3 years and exempting gains from assets held for over 3 years. This would encourage long-term equity investing and support the growth of the mutual fund sector.
- Development of a Safer Fixed-Income Investment Option
AMFI has proposed the introduction of a Dedicated Low-Risk Savings Scheme (DLSS) to provide a safer fixed-income investment option for retail investors. This would help diversify the investment options available to retail investors while fostering the growth of India’s corporate bond market.
- Ease of TDS Compliance for PAN Issues
AMFI has requested that mutual funds be exempted from deducting higher TDS rates when an investor’s Permanent Account Number (PAN) becomes inoperative after onboarding. This change would simplify tax compliance and enhance the ease of doing business for mutual fund investors.
- Encouraging International Investments
AMFI advocates for measures enabling Indian mutual funds to expand their reach to international markets, particularly in IFSCs. This would help Indian funds tap into global capital pools and further integrate the Indian financial markets with global investment trends.
Conclusion
Through these 13 recommendations, AMFI aims to address some of the most pressing concerns faced by mutual fund investors and enhance the attractiveness of mutual funds as an investment vehicle. If implemented, these proposals could have a far-reaching impact on the mutual fund industry, contributing to higher investor participation, improved tax efficiency, and better financial planning opportunities for retail and institutional investors.
AMFI’s Vision for a Progressive Budget
In anticipation of the Union Budget 2025, Venkat Chalasani, AMFI’s Chief Executive, emphasized the need for a budget that fosters investor confidence and strengthens mutual funds as a key driver of economic development and wealth creation. With these thoughtful proposals, AMFI hopes to see a progressive budget that nurtures long-term growth and stability for the mutual fund sector.