Funds, Insurers Want More Tax Incentives to Bring Back Investors
Say govt must differentiate between long-term savings & short-term investments
Taxpayers don’t really have to ask the government for any benefits. The mutual fund industry and insurance companies are already pressing for incentives on their behalf. “The government must provide the right tax savings support to long-term savings and clearly differentiate them from shortterm investments. An additional tax incentive of ` 1.5 lakh to life insurance and ` 1 lakh for retirement plans could result in a significant growth for the life insurance industry,” says Rajesh Sud, CEO and MD, Max Life Insurance. An additional tax deduction for retirement planning will be welcomed by the industry as well as investors. This was first proposed in the original Direct Taxes Code in 2009, but was removed from the revised version of the proposed legislation. Such a measure will be a shot in the arm for retirement planning. The much-touted New Pension Scheme has not made much headway, managing to attract only 2.4-lakh voluntary investors compared to the 20 crore it was targeting.
Fund houses are also looking at tax benefits that can bring investors back. The industry has witnessed a sustained drop in investor interest in the past 2-3 years. Mutual funds lost almost 16 lakh retail portfolios between September and March 2014, according to a Crisil study. Ironically, this was the period when the equity markets shot up, with the Nifty gaining 17% on positive domestic and global cues. Though the trend of folio closure reversed in April, with almost four lakh new folios, the industry is yet to recover the ground it has lost over the past five years.
“Indian taxpayers generally avoid investments that do not offer tax benefits,” says Vijai Mantri, CEO and MD of Pramerica Mutual Fund. “It will help if some tax benefits are offered on mutual fund investments. However, instead of clubbing them in the overcrowded Section 80C, mutual funds should have an exclusive provision,” he adds. One important measure that fund houses are looking forward to is the reintroduction of the Section 54 benefits. Till about 15 years ago, investors could put their capital gains in mutual funds and claim exemption from capital gains tax under Section 54 EA and EB. In 2000, the Atal Bihari Vajpayee government did away with the benefit. “It was a simple and effective method of channelising capital gains in the system as well as providing the mutual fund industry a ballast of long-term monies. The reintroduction of Section 54 would be beneficial for all stakeholders in the mutual industry,” says Vikaas M Sachdeva, CEO of Edelweiss AMC.