The Tax Axe

While the litany of complaints against the Kelkar report is long, the nature of its recommendations on the mutual funds industry is fundamentally different from those on other parts of the economy. In areas like housing loans and agricultural income, new tax norms may make a certain activity a little more or a little less attractive. However, in the case of the mutual funds, an implementation of the Kelkar recommendations will necessitate a fundamental change in the way the industry operates. There are two parts of the report that impact mutual funds. One is a straightforward removal of tax exemptions that investors have enjoyed under Section 88, which includes NSC, NSS, EPF and PPF. The other is a structural change in the way mutual funds are taxed. Let's take a look at both separately and extrapolate the impact that each will have on investors. Section 88 Changes As things stand, the tax rebate provided by section 88 to instruments like NSC, NSS, EPF and PPF provide a much greater effec

This article was originally published on February 20, 2003.