Exemption from DDT in respect of Tax-exempt Institutional Investors AMFI BUDGET PROPOSALS 2018-19

AMFI-  Association of Mutual Funds in India

BUDGET PROPOSALS FOR FY 2018-19

Exemption from Dividend Distribution Tax (DDT) in respect of Tax-exempt Institutional Investors

Background

The Finance Act, 2013 introduced a new Section 115TA relating to Tax on Distributed Income by Securitisation Trusts.

The proviso to Section 115TA states that Dividend Distribution Tax (DDT) will not be charged when the income is distributed by a Securitization Trust to a person in whose case, the income, irrespective of its nature and the source, is not chargeable to tax under the Income Tax Act.

Proposal

It is proposed that on the same analogy as per proviso to Section 115TA, Tax-exempt institutional investors such as EPFO, NPS, Insurance Companies, non-profit Section 8 companies etc. or Pass-through vehicles who invest on behalf of their investors / contributors/ policyholders in Mutual Funds schemes or Infrastructure Debt Funds of Mutual Funds, should be exempt from Dividend Distribution Tax under section 115R of the Income Tax Act.

Justification

•                     Although pre-tax returns from Debt Mutual Fund schemes or Infrastructure Debt Funds are competitive, due to the levy of DDT u/S. 115R, the post-DDT returns adversely impacts the net returns for the investors. This acts as a deterrent for Tax-exempt institutional investors from investing in mutual fund schemes and MF-IDFs, due to the disparity in the tax treatment of income earned from MFs / MF-IDFs vis-a-vis other interest-bearing financial instruments.

•                     • While waiving DDT in respect of Tax-exempt institutional investors would not affect the Government’s revenue, it would eliminate arbitrage between incomes earned from MFs / MF-IDFs vis-à-vis other interest-bearing financial instruments.

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