CHENNAI: The mutual funds industry has not seen any reduction in inflows after the Budget proposal to impose long-term capital gains tax (LTCG) and dividend distribution tax (DDT), according to N S Venkatesh, chief executive, Association of Mutual Funds of India (Amfi). He, however, added that the MF industry would have been happier without the imposition of LTCG tax.
Finance Minister Arun Jaitley had in his Budget speech proposed a tax on long-term capital gains exceeding Rs 1 lakh at a rate of 10 per cent without allowing the benefit of indexation. All gains up to January 31, 2018 would be ‘grandfathered’, he said.
A grandfather clause is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases.
The finance minister had also proposed the introduction of a tax on distributed income on equity-oriented mutual funds at a rate of 10 per cent.
“Despite LTCG, mutual funds continue to be a good investment option,” Venkatesh noted. Mutual funds now face LTCG tax and DDT, which make them uncompetitive against ULIPs (Unit Linked Insurance Plans).
“There is no level playing field between ULIPs and mutual funds in terms of tax incidence,” he said adding the mutual fund industry was trying to keep everything (mutual funds, ULIPs) ‘on the level playing field’. He, however, noted that all financial products should get the same tax treatment.
Amfi has also represented to the Centre urging them to reconsider the long-term capital gains tax and dividend distribution tax for the mutual fund industry.