AMFI stated that the holding interval for long-term capital beneficial properties (LTCG) for direct funding in listed debt securities/and Zero Coupon Bonds (listed or unlisted) and for funding via debt mutual funds must be harmonised and made uniform.
Background
At the moment, the minimal holding interval for items of debt-oriented mutual funds (listed or unlisted) to qualify as a long-term capital asset is 36 months. Nonetheless, for direct investments in listed securities equivalent to bonds/debentures, authorities securities, derivatives, and many others., listed on a recognised inventory change in India and Zero Coupon Bonds (listed or unlisted), the holding interval to qualify as Lengthy Time period Capital Asset is just 12 months.
In different phrases, the holding interval for direct funding in a listed debenture
to be handled as a long-term funding for capital achieve tax functions is 12 months; whereas, if the identical funding is made via a debt-oriented mutual fund scheme, the holding interval is elevated to 36 months to be thought to be a long-term funding for capital achieve tax functions.
There may be additionally income leakage on account of the tax arbitrage, particularly in respect of funding in Zero Coupon Bonds, as many HNIs are understood to have shifted their debt investments to listed zero coupon bonds and thus managed to scale back their tax legal responsibility from peak price of 43 % to 10 % beneath LTCG. Thus, there’s a want for harmonizing the tax remedy on investments in debt-oriented MFs and direct investments in debt securities, AMFI stated.
“It’s logical and truthful to convey parity within the holding interval for capital beneficial properties tax
functions for direct funding in listed debt devices and funding in
such listed debt devices via debt-oriented mutual fund schemes,” the mutual fund business physique stated.
Proposal
Based on AMFI, the parity in tax remedy may very well be carried out by bringing the 2 at par in by both
(i) treating investments in nonequity-oriented mutual fund schemes which make investments 65 % or extra in listed debt securities as long-term, if they’re held for greater than 12 months;
OR
(ii) growing the minimal holding interval for direct funding in listed debt securities/and ZeroCoupon Bonds (listed or unlisted) to 36 months to qualify
as Lengthy-Time period Capital Property.
Justification
It’s logical and truthful to convey parity in tax remedy for direct funding in listed debt securities and oblique funding in the identical devices via debt-oriented mutual fund schemes, AMFI stated.
“This parity between direct investments in a listed safety (by corporates and HNIs) and oblique investments made via mutual funds by retail buyers would additionally forestall tax income leakage,” it stated.
