(Bloomberg) -- Asset managers are concerned about tweaks being proposed to India's tax rules that could impact the nation's $150 billion fixed-income mutual fund industry.
An amendment to the Finance Bill, expected to be tabled in India's parliament on Friday, will make holders of certain debt funds ineligible to claim long-term capital gains benefits, the Financial Express newspaper reported. Instead, the debt fund holdings will be taxed depending on the investors' income tax rate, which is likely to be higher, according to the report.
India's Finance Ministry did not respond to calls seeking comments. Shares of asset managers fell in Mumbai.
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“Mutual Funds are playing a larger role in bond market development,” said A Balasubramanian, chief executive officer at Aditya Birla Sun Life AMC Ltd. and chairman of the Association of Mutual Funds in India. “This will take a backseat if long term capital gain tax benefit is removed from debt fund schemes.”
Indian debt mutual funds had net assets under management of 12.3 trillion rupees ($150 billion) as on Feb. 28, according to data available on the Association of Mutual Funds in India website.
Currently, India charges a flat 20% long-term capital gains tax on debt mutual fund units if they are sold after three years from the date of investments. Any sale of units before the three-year threshold attracted a short-term capital gains tax.
“I hope the proposed change in the Finance Bill to remove LTCG with indexation status on debt funds is reviewed,” Radhika Gupta, chief executive of Edelweiss Mutual Fund and vice chair of the country's mutual fund body said in a tweet.
Shares of Aditya Birla Sun Life AMC fell as much as 2.8% as of 10 a.m. in Mumbai on Friday, HDFC AMC dropped 4.7%, Nippon Life India declined 2.2% and UTI AMC shed 2.9%.
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