SEBI proposed to enhance the limit under section 80C to 2 lakhs

For the mobilization of household savings and the growth of the economy SEBI on the 14th Feb 2014 approved a Long Term Policy for Mutual Funds in India. Apart from this the SEBI also proposed some other tax related amendments for the overall growth of our economy. Most eye catching of all would be the increase in the limit under section 80C to 2 lakhs.  

The long term policy includes all aspects – including enhancing the reach and promoting financial inclusion, tax treatment, obligation of various stakeholders, etc. to deal with the public policy objectives of achieving sustainable growth of the mutual fund industry. The recommendations of long term policy has been bifurcated in two buckets, tax incentive related proposals and non-tax related proposals.

Tax related proposals:

The objective of giving tax benefits is to incentives and channelize savings into long term investment products. Schemes offering tax benefits are a powerful approach world over that helps channelize household savings into long term investment products. The tax incentives for Mutual Fund schemes are recommended as under:

(i) A long term product such as Mutual Fund Linked Retirement Plan (MFLRP) with additional tax incentive of Rs.50,000/- under 80C of Income Tax Act may be introduced.

(ii) Alternatively, the limit of section 80C of the Income Tax Act, 1961, may be enhanced from INR 1 lakh to INR 2 lakh to make mutual funds products (ELSS, MFLRP etc.) as priority for investors among the different investment avenues. RGESS may also be brought under this enhanced limit.

(iii) Similar to merger/consolidation of companies, the merger/consolidation of equity mutual funds schemes also may not be treated as transfer and therefore, may be exempted from capital gain taxation.

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