AMFI- Association of Mutual Funds in India
BUDGET
PROPOSALS FOR FY 2018-19
Mutual Fund Units to be
notified for as Long-Term Specified Assets for exemption on Long-Term Capital
Gains under Sec. 54 EE
Background
In the Finance Act 2017, a new
Section 54EE has been inserted in the Income-tax Act, 1961 to provide exemption
from capital gains tax, if the long term capital gains proceeds are invested in
units of specified fund, as may be notified by the Central Government.
“Long term specified assets”
means unit or units, issued before April 1, 2019 of such fund as may be
notified by the Central Government in this behalf.
The investment in the units of
the specified fund shall be allowed up to ₹ 50 lakhs, subject to a lock in
period of three years.
Proposal
It is recommended that Units
issued by Mutual Funds that are registered with SEBI, having a lock-in for
three years may be notified as “Long term specified assets” under Section 54EE.
Further, the investments in
mutual fund units could be permitted in both equity oriented or debt oriented
funds, based on investors’ choice & risk appetite, with a lock in period of
three years.
Justification
In 1996, the Government had
introduced Sections 54EA and 54EB of the Income Tax Act, 1961, with a view to
channelize investment into priority sectors of the economy and to give impetus
to the capital markets.
Under the provisions of these
sections capital gains arising from the transfer of a long-term capital asset
on or after 1st October, 1996, were exempted from capital gains tax if the
amount of net consideration (Section 54EA) or the amount of capital gain
(Section 54EB) was invested in certain specified assets, including mutual fund
units, redeemable after a period of three years. (Notification No. 10248 [F.
No. 142/58/96-TPL], dated 19-12-1996).
However, the said Sections 54EA
and 54EB were withdrawn in the Union Budget 2000-01.
Hence, notifying the mutual fund units as Long term
specified assets under Section 54EE would encourage individual tax payers to
invest in capital markets via mutual funds, and help to channelize long term
household savings into Capital Market.
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