Additional tax-saving avenues are on their way. A Securities & Exchange Board of India committee has proposed tax exemptions up to Rs2 lakh under Section 80 C of the Income Tax Act, as against the current limit of Rs1 lakh.
The only caveat is that this additional Rs1 lakh needs to flow into dedicated infrastructure funds (DIFs), which will have a seven-year lock-in. Section 80 C allows exemptions of Rs1 lakh for investments in instruments like equity-linked savings schemes, special 5-year bank deposits, PPF, national savings certificates, etc.
This means that Rs1 lakh can be deducted from your income to arrive at your taxable income.
DIFs were proposed by finance minister P Chidambaram in his 2007-08 budget. A Sebi panel chaired by UTI Mutual Fund chairman UK Sinha has been working on this, and has now put out draft guidelines. Public comments on these suggestions have been invited till August 31. The draft framework suggests that capital gains arising on account of the transfer of long-term capital assets be exempted from tax if the capital gains are invested in DIF units.
DIFs are expected to invest a chunk of their corpuses in unlisted companies undertaking infrastructure projects with longer gestation periods. They will operate as closed-ended schemes with a maturity of seven years, with the possible extension of the duration to a further seven years.
To provide liquidity, the committee has also suggested that DIFs be listed on exchanges, just like exchange-traded funds. “The proposed DIFs should get listed within 24 months of the launch of the scheme and be allowed to buy back the units from the market within certain limits to safeguard the interests of investors,” the report said.
The exit options suggested are initial public offerings, strategic sales or buybacks. If the suggestions of the committee are accepted, then DIFs would be allowed to invest up to 100% of their corpuses in the equity and debt of unlisted companies. Investments in listed infrastructure companies would be capped at 10% of the net asset value at the time of investing.
DIFs would be allowed to have an expense ratio of 3.25% of the corpus, 1% higher than the permissible limits for existing MFs. The asset management companies would have to announce quarterly net asset values.
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