The Securities and Exchange Board of India will petition the new Government for more tax sops for mutual funds and the equity market to incentivise and channel savings into long-term investment products.

IT Act Amendment
“The SEBI board has approved these measures and sent them to the Finance Ministry. We will push for implementation of these measures with the new government,” a senior SEBI official told Business Line. The measures require amendments to the Income Tax Act, which is why Government support is needed.

One of the proposals is for providing tax benefits on pension products by mutual funds. “A long-term product, such as the Mutual Fund Linked Retirement Plan, with an additional tax incentive of ?50,000 under Section 80C of the Income Tax Act, may be introduced,” says the proposal. If this happens, pension products of mutual funds will be at par with those of insurance companies.

Though there is no restriction on mutual funds launching pension products, the lack of tax benefits at the time of investing (except in two schemes) makes them unattractive. Only two pension schemes by mutual funds — UTI Retirement Benefit Pension Fund (launched in 1994) and Templeton India Pension Plan (formerly known as Kothari Pioneer Pension Plan; launched in 1997) — can offer tax benefits on investment. During the past 17 years, mutual funds have not launched any pension plan.

Alternative option
SEBI has suggested that if no separate limit can be provided, the limit of Section 80C of the IT Act, 1961 could be enhanced to ?2 lakh from ?1 lakh. This will make mutual fund products attractive. SEBI feels the Rajiv Gandhi Equity Savings Scheme may also be brought under the enhanced limit.