The Association of Mutual Funds in India (AMFI) has submitted a detailed memorandum with the finance ministry on tax issues related to mutual funds. According to sources close to AMFI, the memorandum was submitted last week by AMFI chairman A P Kurian to finance secretary Vijay Kelkar. One of the important recommendations made to the government was to increase the exclusive limit of Rs 10,000 available in equity-linked saving schemes (ELSS) to Rs 30,000.

``The finance secretary was very positive to the suggestions made by AMFI and we are hopeful that someof the recommendations will be accepted in the budget presentation for 1999-2000,'' said an industry source. ``The limit of Rs 10,000 was introduced six years ago and hence, it is pertinent that the limit is hiked now,'' he added.

However, a cross-section of fund managers expect the government to hike the limit by an additional Rs 10,000 to Rs 20,000. If investments upto Rs 20,000 are qualified for tax rebates, an investor will be able to claim a total tax exemption of Rs 4,000 (20 per cent of Rs 20,000) instead of the current level of Rs 2,000.

``Given the current debate in finance ministry on revival of capital markets, it is expected that the hike in ceiling comes through to encourage higher investments from investors in equity markets,'' said an analyst. ``There have been some schemes like Kothari and Alliance tax planners that have given decent appreciation. If the exemption ceiling is hiked, investors will invest in those ELSS that give good capital gains after the three-year lock-in is over,'' saida fund manager.

In fact, one of the suggestions made to the finance ministry was to make ELSS open-end. ``We never expected the ministry to move so fast on this recommendation and now we hope that the government quickly takes a decision on hiking the exemption limit,'' said the head of a mutual fund. The government on Tuesday allowed mutual funds to float open-ended equity-linked saving schemes. The investor will now have the option to join open-end ELSS at any time of the year and would not have to necessarily rush with his investments towards the end of a fiscal. AMFI had also made a recommendation for extending the section 88 benefit, available under ELSS, to open-end balanced funds with an equity exposure of 50 per cent. However, there has been no announcement to extend the tax breaks under section 88 to balanced funds. Besides ELSS, AMFI has suggested that exclusive income limit from income of units (section 80 L) be hiked from Rs 3000 to Rs 10,000 as the former was fixed ten years ago. The associationhas also sought an additional exclusive limit of Rs 50,000 for pension and retirement plans floated by mutual funds on the lines of the 401K plan of US. Currently, under the overall limit of section 88, a limit of only Rs 10,000 is allowed for pension plans, approved by CBDT. AMFI has also raised the issue of extending nomination facility to investors in all mutual funds. The same is currently allowed only to UTI unitholders.