Mutual fund distributors wish for higher deduction in budget 2023
As the union budget 2023 approaches, Indian mutual fund distributors are hoping for a deduction in the tax rules. Currently, investors in mutual funds are eligible for a deduction under section 80C of the Income Tax Act. However, the maximum limit for this deduction is only Rs 1.5 lakhs, which is considered inadequate by many mutual fund distributors in relation to the inflation.
The mutual fund industry has been growing rapidly in recent years, with a significant increase in the number of investors. However, the lack of sufficient tax benefits has been a hindrance to its growth. Investors are often deterred by the high tax liabilities associated with mutual funds, which makes them less attractive compared to other investment options.
In order to boost the growth of the mutual fund industry, it is essential to provide adequate tax deductions. One way to do this as per demands of mutual fund distributors is by increasing the maximum limit for deductions under section 80C. This will encourage more investors to invest in mutual funds, leading to an increase in the industry's assets under management. Nirav Karkera, research head of Fisdom financial advisory firm states, “The dated threshold to avail deductions under Section 80C must be revised. There is a sense of urgency attached to this revision considering growing incomes, ability to financialise savings and the economic need to route savings to investments.”
The second matter of discussion is long-term capital gains. People are wishing for simplicity in the upcoming budget for long-term capital gains as there are different rates and norms to qualify for the lowest tax rates. People in general expect parity across asset classes. Plan Ahead Wealth Advisors' founder, Vishal Dhawan, states, "For listed bonds, the gains are taxed as long-term capital gains if they are held for one year. However, to be termed as long-term capital gains, debt, real estate, and equity funds need to be held for three, two, and one year, respectively. The rate of tax also varies which leads to confusion. The government should rationalise this."
People anticipate tax parity for a variety of products in the same class of assets. Investors are uncomfortable with the different tax treatments for ULIPs (unit-linked insurance plans) and equity-based units.
In conclusion, Indian mutual fund distributors are hoping for an increase in the maximum limit for deductions under section 80C and tax exemptions for long-term investments. This will boost the growth of the mutual fund industry and encourage more investors to invest in this asset class.
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