Mutual Funds Body Urges Government to Reconsider Tax Changes
The Association of Mutual Funds of India (AMFI) has appealed to Finance Minister Nirmala Sitharaman to reconsider the tax changes in Mutual Funds. They presented six key requests for changes in the current budget. These suggestions aim to ease impact of recent tax changes on mutual fund investors.
1. Protecting Investors from Retrospective Tax Changes
AMFI is concerned about removal of indexation benefits for debt mutual funds. They have requested that holding costs of these funds be indexed until July 23, 2024. Removal of this benefit since April 1, 2023, has had negative impact on investors. New tax rates applied retroactively could harm investor confidence. This may discourage new investments.
2. Redefining Specified Mutual Funds
AMFI has suggested revision to definition of Specified Mutual Funds under Section 50AA of Income Tax Act. They propose including funds that invest more than 65% in debt or money market instruments. Also, funds that invest more than 90% in such instruments should be included. This change would help prevent investors from losing long-term capital gains benefits. It would apply at lower investment thresholds.
Overall this revision aims to provide clarity. It seeks to protect investor interests. By broadening the definition, it ensures that more funds qualify. Such measure would strengthen investment landscape.
3. Immediate Effect for Tax Amendments
The current amendment to Section 50AA is set to take effect from April 1, 2026. AMFI has requested change be implemented immediately. This would avoid further disadvantages for investors.
4. Bringing Back Previous Capital Gains Tax Rates
Recent budget changes increased short-term capital gains tax from 15% to 20%. Long-term capital gains tax rose from 10% to 12.5%. AMFI has urged return to previous rates. They highlight higher taxes might discourage everyday investors from choosing mutual funds. This could hinder efforts to shift people from traditional savings methods to mutual funds.
5. Lowering Transaction Taxes for Specific Funds
AMFI has also called for reduction in Securities Transaction Tax for Arbitrage and Equity Savings Funds. These funds use futures and options for hedging. Increased STT and short-term capital gains tax have raised their costs. AMFI wants STT rates for these mutual funds returned to previous levels.
6. Fair Taxation for Debt Mutual Funds
Finally, AMFI has requested that debt mutual funds held for over year be taxed at 12.5% similar to rate for listed bonds. They propose amending Finance Act 2023. This change would classify mutual fund units as “securities”. It would align tax rates with those of listed bonds Suggestions from AMFI, aim to protect investors. They also ensure mutual funds remain attractive investment option.
