Budget 2024: AMFI Pushes For NPS-Like Tax Incentives On Pension Schemes

Budget 2024: In its Budget proposals submitted to the Finance Ministry, Amfi has recommended aligning the tax treatment of NPS and retirement or pension-oriented schemes launched by mutual funds

Budget 2024: Amfi has proposed the introduction of a 'Debt Linked Savings Scheme' (DLSS) modeled after the Equity Linked Savings Scheme (ELSS).

Source : Pexels

Budget 2024: The Association of Mutual Funds in India (Amfi) has urged the government to permit mutual funds to offer pension-focused schemes, termed Mutual Fund Linked Retirement Schemes (MFLRS), with tax benefits akin to those provided by the National Pension System (NPS).

In its Budget proposals submitted to the Finance Ministry, Amfi has recommended aligning the tax treatment of NPS and retirement or pension-oriented schemes launched by mutual funds. The industry body has suggested that these schemes be included under Section 80CCD of the Income Tax Act, 1961.

Additionally, Amfi has called on the government to tax capital gains on the redemption of debt-oriented mutual funds held for more than three years at a rate of 10 per cent without indexation, similar to the treatment of debentures. The association also requested a reconsideration of the short-term capital gains tax imposed last year on debt-oriented mutual funds with up to 35 per cent equity exposure.

Amfi proposed an amendment to Section 50AA of the Finance Act, 2023, aiming to enhance retail investor participation in bond markets through debt funds by aligning their tax treatment with that of debentures and government securities. Currently, capital gains on these instruments, when held for over three years, are taxed at 10 per cent without indexation, with the holding period reduced to 12 months for listed debentures.

Before the introduction of Section 50AA, these mutual fund schemes benefited from both indexation and a lower long-term capital gains tax rate if held for more than three years. However, they are now classified as short-term capital assets regardless of the holding period.

Furthermore, Amfi has proposed the introduction of a 'Debt Linked Savings Scheme' (DLSS) modeled after the Equity Linked Savings Scheme (ELSS). This initiative aims to channel long-term savings of retail investors into higher credit-rated debt instruments with appropriate tax benefits, thereby deepening the bond market.