AMFI- Association of Mutual Funds in India
BUDGET
PROPOSALS FOR FY 2018-19
Removal of Double Taxation
of STT on Equity Oriented Funds and Exchange Traded Funds
Background
As per current
Tax laws, in respect of Equity Oriented Funds (EOF), the Mutual Funds are
required to pay Securities Transaction Tax (STT) on sale of securities.
• In addition, the unit-holders (Investors) are also
required to pay the STT on the redemption value at the time of redemption of
units.
• Thus, there is clearly a double levy of STT for an
investor investing in the equity markets through the mutual fund route, i.e.,
via an EOF.
• Where the EOF is an Exchange Traded Fund (ETF), listed
on a stock exchange, the investor of the ETF pays STT on the purchase and sale
of units in the ETF.
• Similarly,
there is multiple levy of STT when the following events occur: - Units are purchased from /
sold to Authorised Participants;
- Underlying securities are transferred by / to
Authorised Participants;
- Units surrendered by AP to the mutual fund are
redeemed.
Proposal
It is proposed that the
incidence of STT being paid by the Mutual Funds on sale of equity shares in
respect of MF schemes should either be abolished altogether or levied only at
the time of redemption by the investor.
Justification
• The double levy
of STT on EOFs/ETFs, adversely impacts the returns in the hands of the
investors and could act as a deterrent from investing in mutual funds, which,
in fact, are a more appropriate platform for retail investors to participate in
the capital markets.
• To encourage retail participation and deepening of
capital markets, the double levy of STT on EOF/ETF should be removed.
• As provided in case of New Pension Scheme (NPS) by the
Finance Act, 2009, the incidence of STT being paid by the Mutual Funds on sale
of equity shares in respect of MF schemes needs to be abolished, since Mutual
Funds are ‘pass through vehicles’
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