CPSE ETF and Bharat-22 ETF are listed on domestic exchanges
CPSE ETF and Bharat-22 ETF are listed on domestic exchanges

New proposal to extend ELSS-like income tax benefits to CPSE, Bharat-22 ETFs

  • Investments made in ELSS mutual funds are eligible for tax deduction of up to 1.50 lakh under Section 80C
  • Extending Section 80C income tax benefits to CPSE, Bharat-22 ETFs could spur more retail interest

Retail investors in CPSE and Bharat-22 ETFs could get ELSS-like income tax benefits, if a proposal from Department of Investment and Public Asset Management is accepted by income tax authorities. Press Trust of India, citing an official, reported that the Department of Investment and Public Asset Management (DIPAM) has written to the Central Board of Direct Taxes (CBDT), seeking their opinion on whether equity linked saving scheme (ELSS) benefit under Section 80C of Income Tax Act can be extended to retail investors of these ETFs.

"We have written to the tax department seeking their opinion on whether ELSS benefits can be extended to CPSE and Bharat-22 ETF," the official was quoted by Press Trust of India as saying.

Currently, investments made in ELSS mutual funds, which come with a lock-in period of three years, are eligible for tax deduction of up to 1.50 lakh under Section 80C of the Income Tax Act.

According to the plan chalked out by Department of Investment and Public Asset Management, Press Trust of India reported, retail investors in CPSE and Bharat-22 ETF would be given two options: Enjoy tax breaks just like investors in ELSS mutual funds but their investments would be locked-in for three years. Under another option, investors in CPSE and Bharat-22 ETF can also choose to not opt for ELSS category and can continue to trade in their units freely.

The aim to extend ELSS benefits to CPSE and Bharat-22 ETFs would stimulate retail investments in these ETFs.

The CPSE ETF, which consists wholly of government-owned companies, was launched in 2014 and has seen many additional offerings (tranches) since then. ETFs function like a mutual fund scheme and have underlying assets of government-owned companies. Bharat-22 ETF tracks the Bharat 22 Index which comprises 22 companies—19 public sector companies or PSUs and three private sector firms where government holds minority stake.

CPSE ETF and Bharat-22 ETF are listed on domestic exchanges.

Press Trust of India had earlier reported that the government has kickstarted work on launching an ETF consisting of stocks of state-owned banks, insurers and financial institutions this fiscal and has invited bids from advisors to explore its feasibility.

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