Budget 2023 Expectations: Mutual Fund industry body asks govt for preferential tax treatment for Gold ETFs, Fund of Funds

The industry body has requested that mutual funds should be allowed to introduce low-cost, lower-risk tax-exemption-linked debt-linked savings schemes (DLSS) on the lines of equity-linked saving schemes (ELSS).

Apart from gold, the Association of Mutual Funds in India (Amfi) has suggested that the definition of equity-oriented funds should be revised to include FoF investing in index funds. (Representative image from Pixabay)

To encourage retail investors to invest in yellow metal through mutual fund route, industry body Amfi has asked the government for preferential tax treatment for Gold ETFs and Fund of Funds ahead of the Union Budget.

In its budget proposals for 2023-24 to the finance ministry, Amfi has proposed that Gold ETFs and Fund of Funds (FoF), which invest 90 per cent or more of their corpus in units of Gold ETFs, should be subjected to long-term capital gains tax of 10 per cent instead of 20 per cent with indexation benefit.

Alternatively, it has suggested that holding period to avail long-term capital gains taxation in respect of Gold ETFs (exchange traded funds) should be reduced from existing three years to one year.

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"A preferential tax treatment to financial gold offerings like Gold ETFs and Fund of Funds ...Will promote the category as a gold investment avenue over other fiscally inefficient avenues like physical gold and gold jewellery. This move will be in line with the government's agenda to discourage savings and investments in physical gold/jewellery and boost the financialisation of gold holdings," Amfi said.

Such incentives are prevalent in other countries like the UK where investment in gold does not attract VAT (Value Added Tax) which is charged on non-investment gold at the rate of 20 per cent.

At present, Gold ETFs and Fund of Funds are currently subject to capital gains tax which is in line with other gold investment avenues -- short-term capital gains taxed at a marginal tax rate for holding period up to 3 years and long-term capital gains tax of 20 per cent with indexation benefit for holding period of more than 3 years.

Apart from gold, the Association of Mutual Funds in India (Amfi) has suggested that the definition of equity-oriented funds should be revised to include FoF investing in index funds.

It has requested government to bring uniformity in taxation on listed debt securities and debt mutual fund (MF) and bring parity in tax treatment between MFs and unit-linked insurance plans (ULIPs).

Also, it has been proposed that intra-scheme switches -- switching of investment within the same mutual fund scheme -- are not regarded as "transfer" and the same should be exempt from payment of capital gains tax.

The industry body has requested that mutual funds should be allowed to introduce low-cost, lower-risk tax-exemption-linked debt-linked savings schemes (DLSS) on the lines of equity-linked saving schemes (ELSS).

It has been further proposed that investment of up to Rs 1.5 lakh under DLSS be eligible for tax benefit, subject to a lock-in period of five years (just like tax saving bank fixed deposits).
Currently, equity-linked savings schemes qualify for tax benefits under Section 80 CCC of the Income Tax Act for an investment limit of up to Rs 1.5 lakh in a fiscal year.

It has recommended that all registered insurance companies be permitted to outsource the fund management activities to registered Asset Management Companies (AMCs) and the AMCs be permitted to provide fund management/asset management services to the insurance firms.

The industry body has suggested that mutual funds should be allowed to launch pension-oriented MF schemes, 'Mutual Fund Linked Retirement Scheme', with similar tax benefits as applicable to National Pension Scheme (NPS).

The holding period for long-term capital gains for direct investment in listed debt securities/and zero-coupon bonds (listed or unlisted) and for investment through debt mutual funds should be harmonised and made uniform.

This may be done by bringing the two at par either by treating investments in non-equity oriented MF schemes as long-term, if they are held for more than 12 months, or increasing the minimum holding period for direct investment in listed debt securities and zero-coupon bonds to 36 months to qualify as long-term capital asset.

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