Mutual funds have emerged as a strong asset class or investment category for retail investors of the country who have been using Systematic Investment Plan (SIP) route to build a corpus in a gradual but consistent manner.
Mutual funds, however, are subject to different tax treatments depending on the category of the scheme. One such category is retirement or pension plans offered by mutual funds that do not enjoy tax benefits as given to National Pension System (NPS) or the pension plans offered by insurance companies.
Ahead of the Union Budget 2022-23, PGIM India Mutual Fund Chief Executive Officer Ajit Menon has requested the government to ease the tax treatment for retirement benefit or pension schemes offered by mutual funds.
He has highlighted the fact that under the current framework, such schemes of mutual funds qualify for tax benefits under Section 80C but each scheme needs to be notified by Central Board of Direct Taxes (CBDT) for being eligible for tax benefit on a case-to-case basis leading to a time-consuming bureaucratic approval process.
“Long-term products like mutual funds in the retirement category can be a catalyst in channelising household savings into securities market and bring greater depth to the markets,” says Menon.
Such depth brought by the domestic institutions would help in balancing the volatility in the markets and would reduce reliance on Foreign Portfolio Investments, he adds.
According to Menon, the government through the Securities and Exchange Board of India (SEBI) could look at allowing mutual funds to launch ‘Mutual Fund Linked Retirement Plan’ that would be eligible for tax benefits under Section 80CCD (1) & 80CCD(1B) of Income Tax Act, 1961, with Exempt-Exempt-Exempt (E-E-E) status.
He further says that CBDT in consultation with SEBI could look at laying down a framework to do away with the need for each mutual fund scheme to apply individually for tax benefits under Section 80CCD.
“There is a very strong case for bringing mutual funds Retirement Benefit or Pension Schemes under Section 80CCD instead of Section 80C to bring parity of tax treatment for the pension schemes and ensure level playing field,” says Menon.
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