New Delhi: To increase retail participation in mutual funds, Fiance Minister Arun Jaitley on Monday proposed extending capital gains tax exemption to merger of different plans in an MF scheme.
Currently, capital gains tax is levied on consolidation or merger of multiple plans within a mutual fund (MF) scheme.
However, fund houses are of the view that it is not feasible to levy capital gains tax when an investor moves from dividend option to growth option in a scheme.
"It is proposed to extend the tax exemption, available on merger or consolidation of MF, to the merger or consolidation of different plans in an MF scheme.
"...Any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating plan of an MF scheme, made in consideration of the allotment to him of a capital asset, being a unit or units, in the consolidated plan of that scheme of the MF shall not be considered transfer for capital gains tax purposes and thereby shall not be chargeable to tax," Finance Minister Arun Jaitley proposed in his Union Budget for 2016-17.
These amendments would be effective from April 1, 2016 and will accordingly apply in relation to assessment year 2017-18 and subsequent assessment years.
Besides, mutual fund distributors and agents will have to pay service tax of 14 percent.
"The services provided by mutual fund agent/distributor to a mutual fund or asset management company, are being made taxable under forward charge with effect from April 1, 2016," Jaitley said.
This will enable small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of Rs 10 lakh per year, he added.
The distributors have been demanding for long exemption from service tax.
At present, there are around 6,000 active mutual fund distributors and more than 40 Asset Management Companies (AMCs), which together manage assets worth Rs 12.74 lakh crore.
Commenting on the proposal, wealthforce.Com Founder Siddhant Jain said: "Budget 2016 turned out to be a positive budget, specially for the average retail investor. The Finance Minister shored up trust in government policy and outlook by not tinkering with the Long Term Capital Gains on equity mutual funds.
"This is a good time for the retail investor to increase his SIPs as we are both at a relatively lower base as well as looking at potential growth in the coming fiscal."
Mutual funds pool together money from many investors and invest it on their behalf, in accordance with a stated set of objectives.