New Delhi, Jan 10 (Inditop.com) The government should allow people to invest provident fund (PF) contributions in the capital market through mutual funds, industry body Associated Chambers of Commerce and Industry of India (Assocham) has said.
“Initially this may be restricted to 10 percent of the individual’s PF contribution, determined on yearly basis,” Assocham said in a statement Sunday.
The chamber said it has also recommended to market regulator Securities and Exchange Board of India (SEBI) to promote inflows into equities by floating individual retirement arrangement (IRA) schemes for PF contributors.
The proposed move, according to Assocham, will bring to the capital market sufficient amounts of PF funds and individuals will enjoy an improved return on investments.
“The issue regarding capital gains and security transactions tax and other taxes in such accounts can be waived off as incentives to contributors,” said Assocham president Swati Piramal.
Piramal argued that the recommended IRAs were aimed at investing in savings to create post-retirement wealth and were popular in developed economies, adding that concessions like a deferred tax system could be offered to encourage people to opt for the scheme.
“Each contributor in the proposed IRA could invest up to Rs.5 lakh in a year in a mutual fund scheme that would invest in equity or in a combination of equity and debt as per investors choice,” she said.
Assocham also recommended a lock-in period of minimum of 10 years for such investments which could be withdrawn only after investors attain the age of 58 or 10 years after investment, whichever was earlier.
“The amount invested in IRA should be tax deductible. The dividend and capital appreciation should also be exempted from taxes when investors withdraw the amount and the scheme should follow the Exempt Exempt Taxed (scheme),” Assocham suggested.
This, according to the chamber, will promote long-term investments in equity and debt and ensure a reasonable income post-retirement benefit.
