Budget 2019: Government Working On Tax Sops For Retail Investors In CPSE, Bharat-22 ETFs

Adding ELSS sops to the existing ETFs will not add to the government’s disinvestment coffers, but would spur retail investments.
Pedestrians walk past the Bombay Stock Exchange (BSE) in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)
Pedestrians walk past the Bombay Stock Exchange (BSE) in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

The government is working on a proposal to extend tax benefits to retail investors in its two exchange traded funds—CPSE and Bharat-22 ETF.

The Department of Investment and Public Asset Management has written to the Central Board of Direct Taxes, seeking their opinion on whether equity-linked savings schemes’ benefit under section 80C of Income Tax Act can be extended to retail investors of these ETFs, an official said.

As per the plan chalked out by DIPAM, retail investors in CPSE and Bharat-22 ETF would be given option to enjoy tax breaks just like investors in Equity Linked Savings Scheme mutual funds. However, their investments would be locked-in for three years.

These investors can also choose to not opt for ELSS category and can continue to trade in their units freely.

The official said that they have written to the tax department seeking their opinion on whether ELSS benefits can be extended to CPSE and Bharat-22 ETF.

If the CBDT, which is the apex decision making body for direct tax matters, gives concurrence, then DIPAM would work out a final plan and an announcement may be made in the 2019-20 budget to be unveiled on July 5.
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Though extending ELSS benefits to the existing ETFs wouldn’t add to the government's disinvestment coffers, it would stimulate retail investments in exchange-traded funds and encourage household savings. Currently, investments made in ELSS mutual funds are eligible for tax deduction of up to Rs 1.50 lakh under section 80C of the Income Tax Act, with a mandatory three-year lock-in period.

The government, currently, has two exchange-traded funds—CPSE ETF and Bharat-22 ETF—listed on domestic exchanges. ETFs function like a mutual fund scheme and have underlying assets of government-owned companies. Separately, it has also started work on launching an ETF comprising stocks of state-run banks, insurers and financial institutions this fiscal and has invited bids from advisors to explore its feasibility.

The plan to launch a financial sector ETF comes on the back of the government seeing huge investor demand for two existing ETFs. It has raised Rs 32,900 crore through two tranches and an additional fund offer of Bharat-22 ETF, and Rs 38,000 crore in five tranches of CPSE ETF in the domestic market. The government had raised about Rs 85,000 crore from CPSE disinvestment last fiscal. For the current fiscal, the target is Rs 90,000 crore.

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