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MFs Want Tax Breaks

The industry wants the government to change the rules for investors

It’s Budget season and every institution under the sun is looking for sops from the government in the name of the people. The mutual fund industry is no exception to the trend as it too is lobbying for a windfall for its investors.

The industry wants the Finance Minister to increase income tax exemption under Section 80C, according to a report in Financial Chronicle.

The report quoted Sanjay Sinha, the chief executive officer of DBS Cholamandalam AMC, as saying: “Section 80C of Income-Tax Act gives an investor a deduction on investments of Rs 1 lakh. We expect that this limit would be increased. The MF industry would witness large amount of inflows in tax-saving equity schemes if this happens.”

This step by the government, if it is taken, aside from luring more investors to MFs, will also have the add-on effect of giving MFs access to investors’ money for the long-term in equities.

Now that equities are back as a favoured investment vehicle for investors, after a very bad 2008 and early 2009, the MF industry is looking at the government to keep the sentiment as sound as possible.

Some other points that are occupying the thought space among the MF leaders is to rationalize the tax structure as well as give greater room to advance into new territories, like offering pension schemes, which at the moment MFs are not allowed to do.

According to N.K. Garg, the chief executive officer of Sahara Mutual Fund: “The dividend distribution tax for the liquid funds is 25 per cent. If you add the surcharge, total tax amounts to about 28 per cent. In the case of other schemes, the dividend distribution tax is 12 per cent, plus surcharge. We expect that the government will rationalise the tax structure in the upcoming Budget.”

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