9 RECOMMENDATIONS for BUDGET 2022- 23 BY JIMMY PATEL, MD & CEO, QUANTUM AMC – Mutual Funds & ETFs – Trading Q&A by Zerodha

A Debt Linked Savings Scheme, on-par tax treatment for mutual fund units with NPS and tax exemption for long-term capital gain of mutual fund units with a lock-in of 3 years are some of the recommendations from Jimmy Patel, MD & CEO , Quantum Mutual Fund. Explore more expectations and recommendations shared by him for the upcoming Union Budget, 2022.
1. Introduce Debt Linked Savings Scheme (DLSS) similar to Equity Linked Savings Scheme (ELSS) with a lock in of 5 years like a Bank FD

Benefits of DLSS
• Investments up to ₹1,50,000 under DLSS be eligible for tax benefit
• Long term savings of retail investors will be invested into corporate bond markets which also help boost and deepen the Indian Bond Markets.
• Generate potential returns for long term savings of retail investors
• Help mobilize small investors to participate in bond markets at low costs and at a lower risk as compared to Equity markets.

2. Uniform Tax Treatment for Retirement / Pension Schemes of Mutual Funds on par to the National Pension Scheme (NPS)

Central Board of Direct Taxes (CBDT), in consultation with SEBI, should notify the guidelines and give the framework for Mutual Funds to launch pension schemes for tax eligibility and norms adhering to it.

Benefits of Retirement Benefit/ Pension Schemes offered by Mutual Funds
• Tax deduction u/s 80CCD for investment in up to ₹150,000 with additional deduction for investment up to ₹
• Offer Investors many choices in scheme selection and flexibility.
• Offer potential for high-quality retirement savings.
• Market-linked retirement planning will be on par with global standards

3. Mutual Fund Units should be notified as ‘Specified Long-Term Assets’ qualifying for exemption on Long-Term Capital Gains under Sec. 54 EC

Long term capital gains for Equity/ Debt MF units wherein the underlying investments are in ‘infrastructure sub-sector’ as specified by RBI to be eligible for tax exemption under Sec. 54EC after a lock-in period of three years

Benefits of Tax exemption for Long Term Capital Gains

• Provide the option of equity, or debt schemes based on each individual’s goals.
• Allow investors to save the long-term capital gains and have the option to reinvest in other MF schemes along the same lines for sale of transactions of immovable property.

4. Taxation on Listed Debt Securities and Debt Mutual Funds to be aligned

Investing in non-equity-oriented schemes where 65% or more is invested in long term debt securities need to have on par tax treatment to direct investment in listed debt instruments

5. Definition of Equity Oriented Funds (EOF) to be revised to include Equity Oriented “Fund of Funds”

FOFs (Fund of Funds) investing 65% or more of their corpus in EOF should be reclassified as “Equity Oriented Funds” (EOF)’

Benefits of reclassification

• Exemption from ‘tax on distributed income’ under section 115R.
• Redemption of units in in Equity Oriented Fund of Funds to be allowed the same capital gains tax rules that are applicable to sale of listed equity securities / units of Equity Oriented Mutual Fund Schemes

6. Incentives for Economy Growth
Two key problem areas for the Indian economy have been falling discretionary spending and lack of private capex. Incomes have taken a significant hit due to the Covid virus and one expects the government to breach the gap caused by falling consumer spends.
• Incentivizing private capex in infrastructure creation must be a priority area

This will help pull up the GDP growth as well as having a strong multiplier similar to the 2003-2007 boom that was led by strong uptick in private capex as well as infrastructure creation by private players.

• To increase consumer discretionary spending

Government to increase its fiscal response to stimulate demand via direct income support of cut in taxes for most affected sectors.

7. Removal of Customs Duty on Gold: Reduce customs duty and provide a road map towards removing it completely
High customs duty has caused a differential between the Indian gold prices and international gold price has widened to about 14% in total (10.75% (customs duty + Cess + Social welfare surcharge) + 3% GST). Recent introduction of TCS (Tax Collected at source) also leads to price distortions in the gold market.

Disadvantages of price differential
• Lower demand and illicit gold imports leads to further distortion of gold markets.
• India will never be at the center of the global gold markets despite being the largest consumer and will continue to remain a price taker as price inefficiencies adversely impact gold markets
• Makes it difficult to channelize the hoard of India’s gold savings into circulation and thereby integrate the gold market with other financial markets
The Committee on Capital Account Convertibility (CCAC) put forward some precise and action-oriented recommendations on the liberalization of the gold market. In its view, the main ingredients of the change in the policy on gold should be:
• Removal of restrictions on import and exports of gold,
• Development of gold-related financial instruments,
• Development of markets for physical and financial gold,
• encouragement of banks and non-banks to participate in the gold market.
We agree that these reforms cannot be achieved overnight. However, these are essential steps towards strengthening our gold market which would enable us to further cement our position as world leaders in the global gold market.

8. Need for parity in tax treatment in respect of Intra-sche Switching of Units under MF Schemes

A new sub-section under Section 47 of the Income Tax Act, 1961 can be inserted that will not treat switching on par with transfer and will allow investors to switch between units of a regular plan to a direct plan or vice versa / Growth Option to Dividend Option or vice-versa and hence shall not be charged capital gains

9. Request to permit Insurance Companies to outsource the Fund Management activities to SEBI Registered MF AMCs

In my view, all IRDA-registered insurance companies should be permitted to outsource the Fund Management activities to SEBI Registered Mutual Fund Asset Management Companies (AMCs) and the AMCs should be permitted to provide Fund Management / Asset Management services to the insurance companies by appropriate amendments to relevant SEBI & IRDA Regulations. This will help better development of resources.

Disclaimer, Statutory Details & Risk Factors:
The views expressed here in this article/video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

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