- CPSE ETFs find a place in 80C basket in line with ELSS category; debt market cheers low fiscal deficit figure
- Finance minister Sitharaman reiterates the importance of retail participation in debt markets
The budget proposed tax benefits for exchange-traded funds (ETFs) investing in Central Public Sector Enterprises (CPSEs) in line with the ELSS (equity-linked savings scheme) category, giving investors in these schemes the benefit of tax deduction on investment up to ₹1.5 lakh per annum under Section 80C of the Income-tax Act. Currently, there are two such ETFs—CPSE ETF and Bharat 22 ETF—in the market that are available for investors and more will possibly be launched during the financial year. The move is aimed at ensuring retail investor participation in the government’s disinvestment program, and is likely to increase competition in an already over-crowded Section 80C basket.
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“As ELSS units come with a lock-in period of three years, ETF units may also be subject to the same lock-in if they are on par,” said Gautam Nayak, a chartered accountant. “However the proposal to bring CPSE ETFs in the ELSS category is not present in the Finance Bill or Memorandum. It may be done by amending the ELSS category to cover such ETFs,” he added. “Instead, the Finance Bill proposes to reduce the rate of short-term capital gains tax (STCG) on fund of funds (FoF) to 15% (if they invest at least 90% of their assets in equity funds which in turn invest 90% of their assets in equities),” Nayak said. This will apply to FoFs investing in CPSE ETFs also such as the ICICI Prudential Bharat 22 FoF, which was launched in June 2018.
Source: Livemint
