Budget 2023 | What should change in capital gains tax rules? AMFI lists key expectations

The Association of Mutual Funds in India (AMFI)  has laid out a set of proposals on capital gains taxation for Budget 2023-24. In its wishlist, AMFI said that there is a need to bring parity in tax treatment for investments in different financial sectors.

AMFI has proposed that IntraScheme Switches, i.e., switching of investment within the same mutual fund scheme is not regarded as a “Transfer” under Section 47 of the IT Act, 1961 and the same should be exempt from payment of capital gains tax.

The holding period for long term capital gains for direct investment in listed debt securities / and ZeroCoupon Bonds (listed or unlisted) and for investment through debt mutual funds should be harmonized and made uniform, AMFI proposed.

AMFI has requested for uniform tax treatment on capital gains from mutual fund investments and ULIPs of Insurance companies.

"It is proposed to bring parity in tax treatment in respect of capital gains on withdrawal of investments in ULIPs of life insurance companies and redemption of mutual funds units, so as to bring about level playing field between ULIPs and MF schemes," AMFI said.

AMFI has requested that the LTCG on listed equity shares or units of equity oriented fund schemes be exempted from capital gains tax if the equity shares/mutual funds units are held for at least 3 years by suitable amendments to section 112A, while other tax provisions under the said section may be otherwise continued as it is.

It is proposed to bring parity in tax treatment in respect of capital gains on withdrawal of investments in ULIPs of life insurance companies and redemption of mutual funds units, so as to bring about level playing field

between ULIPs and MF schemes.

It is proposed that the existing provisions w.r.t. surcharge on TDS in respect of NRIs be amended and prescribe a uniform rate of surcharge  at 10 percent on TDS in respect of dividend from mutual fund units u/S 56 to NRIs as well as the capital gains under Section 111A and Section 112A arising upon redemption of mutual fund units in respect of NRIs.

Considering that units of debt ETFs are also securities as per SCRA and are also listed on the exchanges, it is proposed the minimum period of holding for units of Debt ETFs for being considered as long-term investment for capital gain tax purposes be pegged at 12 months at par with listed securities

AMFI has proposed that Gold ETFs and Fund of Funds (FoF), which invest 90 percent or more of their corpus in units of Gold ETFs, should be subjected to long-term capital gains tax of 10 percent instead of 20 percent with indexation benefit.

Alternatively, it has suggested that holding period to avail long-term capital gains taxation in respect of Gold ETFs (exchange traded funds) should be reduced from existing three years to one year.