Eyes on DTC: Will Mutual Fund retirement plans get tax incentives
Will investors get tax incentives on mutual fund retirement plans to
compensate for the benefits that will be lost once the proposed Direct
Taxes Code comes into effect?
Will investors get tax incentives on mutual fund retirement plans to compensate for the benefits that will be lost once the proposed Direct Taxes Code comes into effect?
If the buzz in the air is to be believed, retirement plans launched by mutual funds may offer tax benefits under Section 80C of the Income-tax (I-T) Act.
Recently, at a mutual fund summit, Securities and Exchange Board of India (Sebi) Chairman UK Sinha said, "Nothing prevents an asset manager to come to Sebi and seek approval for a scheme that has pension as its theme. Sebi is willing to recommend to the government that if it is a pension scheme it should get similar treatment (to other pension plans)."
Association of Mutual Funds in India (Amfi) Chairman Milind Barve, who is also managing director of the country's largest fund house, HDFC Mutual Fund, recently said in New Delhi that worldwide mutual funds manage pension money and the industry has been demanding a similar role in India.
Reliance Mutual Fund, the country's second largest, has sought approval for a retirement fund from Sebi. The offer document of the fund claims that "the scheme will get tax benefit (up to Rs 1 lakh) as a notified pension fund under Section 80C of the I-T Act, 1961, subject to the fund being notified by the central government under Section 80C(2)(xiiic) of the I-T Act."
The scheme has a five-year lock-in period and 1 per cent exit load on redemptions before the investor attains the age of 60. Currently, tax-saving schemes of mutual funds have a three-year lock-in and no exit load is charged on any redemption after the lock-in period.
Filing of such a scheme despite no official statement from either the government or Sebi towards extending Section 80C benefit to retirement or pension plans of mutual funds is a curious development.
Is it an indication that the government is warming up to the idea of mutual funds managing pension money?
Reliance Mutual Fund refused to comment on the issue saying they could not speak about the scheme before it was approved by the market regulator.
"There is an enabling clause for extension of Section 80C benefits to mutual fund pension schemes under Section 80C(2)(xiiic) of the I-T Act, it remains to be seen if CBDT (Central Board of Direct Taxes) gives its go ahead," says Jimmy Patel, chief executive officer, Quantum Mutual Fund.
At present, except for two schemes-UTI Retirement Benefit Pension Fund and Templeton India Pension Plan-launched in the 1990s, no retirement mutual funds offer Section 80C benefits.
Both the schemes have a debt-heavy portfolio, with 60-100 per cent of the funds invested in government and corporate debt. Exposure to equities is capped at 40 per cent.
Reliance Mutual Fund's proposed scheme offers two options-wealth-creation plan that will invest 65-100 per cent in equities and rest in debt, and income-generation plan that will have 70-95 per cent debt.
Under section 80C of the I-T Act, investment up to Rs 1 lakh in approved savings instruments is exempt from tax.
The proposed tax code, however, says it will allow pension schemes approved by the government to offer tax benefits. Currently, investments in the National Pension System, life insurance pension plans and provident funds are eligible for tax deduction.
If the buzz in the air is to be believed, retirement plans launched by mutual funds may offer tax benefits under Section 80C of the Income-tax (I-T) Act.
Recently, at a mutual fund summit, Securities and Exchange Board of India (Sebi) Chairman UK Sinha said, "Nothing prevents an asset manager to come to Sebi and seek approval for a scheme that has pension as its theme. Sebi is willing to recommend to the government that if it is a pension scheme it should get similar treatment (to other pension plans)."
Association of Mutual Funds in India (Amfi) Chairman Milind Barve, who is also managing director of the country's largest fund house, HDFC Mutual Fund, recently said in New Delhi that worldwide mutual funds manage pension money and the industry has been demanding a similar role in India.
Reliance Mutual Fund, the country's second largest, has sought approval for a retirement fund from Sebi. The offer document of the fund claims that "the scheme will get tax benefit (up to Rs 1 lakh) as a notified pension fund under Section 80C of the I-T Act, 1961, subject to the fund being notified by the central government under Section 80C(2)(xiiic) of the I-T Act."
The scheme has a five-year lock-in period and 1 per cent exit load on redemptions before the investor attains the age of 60. Currently, tax-saving schemes of mutual funds have a three-year lock-in and no exit load is charged on any redemption after the lock-in period.
Filing of such a scheme despite no official statement from either the government or Sebi towards extending Section 80C benefit to retirement or pension plans of mutual funds is a curious development.
Is it an indication that the government is warming up to the idea of mutual funds managing pension money?
Reliance Mutual Fund refused to comment on the issue saying they could not speak about the scheme before it was approved by the market regulator.
"There is an enabling clause for extension of Section 80C benefits to mutual fund pension schemes under Section 80C(2)(xiiic) of the I-T Act, it remains to be seen if CBDT (Central Board of Direct Taxes) gives its go ahead," says Jimmy Patel, chief executive officer, Quantum Mutual Fund.
At present, except for two schemes-UTI Retirement Benefit Pension Fund and Templeton India Pension Plan-launched in the 1990s, no retirement mutual funds offer Section 80C benefits.
Both the schemes have a debt-heavy portfolio, with 60-100 per cent of the funds invested in government and corporate debt. Exposure to equities is capped at 40 per cent.
Reliance Mutual Fund's proposed scheme offers two options-wealth-creation plan that will invest 65-100 per cent in equities and rest in debt, and income-generation plan that will have 70-95 per cent debt.
Under section 80C of the I-T Act, investment up to Rs 1 lakh in approved savings instruments is exempt from tax.
The proposed tax code, however, says it will allow pension schemes approved by the government to offer tax benefits. Currently, investments in the National Pension System, life insurance pension plans and provident funds are eligible for tax deduction.
