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Budget 2019: what can mutual fund investors expect today?

nirmala new21Will LTCG tax on equity mutual fund schemes go?
Most mutual fund managers and investors want the finance minister to withdraw long term capital gains tax on equity mutual funds. LTCG tax was re-introduced in the last budget and it taxes long term gains of over Rs 1 lakh on equity investments held over a year at 10 per cent. Fund managers believe since it is unlikely to contribute hugely to tax kitty, the government can withdraw it and re-introduce it later when the desired level of investor participation in equity is achieved. Mutual fund investors are furious that the finance minister has ignored the extra risk they are taking in equity mutual funds.
Is there a remote chance of government withdrawing it? Very unlikely, say most mutual fund participants.

Introduce DLSS funds 
Mutual fund industry has been asking for a debt product along the lines of Equity Linked Saving Scheme or ELSS for a very long time. They argue that ultra conservative investors do not invest in ELSS to save taxes because they are scared of investing in stocks. These investors would be happy to invest in a debt mutual fund scheme with a lock-in period to save taxes, say fund managers. ELSS qualify for tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. They come with a mandatory lock-in period of three years.

Some fund managers say the government can offer exclusive tax deductions for the product if it wants to increase investor participation in mutual funds.

Will DLSS become a reality: again, the answer is very unlikely. Section 80C is already overcrowded. It doesn’t make sense to add one more investment option to it. And government is very unlikely to offer new tax incentives since it needs more money to spur development.

Tax benefit for mutual fund pension products
Currently, some pension/retirement products from mutual funds qualify for tax deductions under Section 80C of the Income Tax Act. Now, mutual funds want Section 80CCD(1B) benefit, exclusively available for NPS, extended to their pension products. Investments in NPS qualify for exclusive deductions of up to Rs 50,000 under Section 80CCD(1B).
Will this happen in this budget? It can happen only when the government decides to overall the entire retirement space, investments options, and taxes.

Parity with ULIPs
Since the re-introduction of LTCG tax on equity schemes, mutual fund industry lost a powerful sales pitch: tax free returns. Now, insurance industry is using that as a sales pitch, especially to push low-cost ULIPs. Mutual funds believe that withdrawal of LTCG tax on equity schemes and tax-free switches would offer mutual funds a level-playing field. It remains to be seen whether the new government is prepared to get into parity between mutual funds and insurance industry at this juncture.


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