AMFI calls for indexation, LTCG relief in Budget 2026

Summary: AMFI has made a fresh pitch to the government ahead of Budget 2026, flagging tax rules that may be nudging investors away from long-term mutual fund investing. The proposals range from debt-fund taxation to addressing everyday frictions that hurt investors.

Association of Mutual Funds in India (AMFI) has submitted its recommendations for the forthcoming Union Budget 2026, urging the government to address tax distortions that, it says, are discouraging long-term participation in mutual funds.

Fixing the tax treatment of debt funds

At the top of AMFI’s list is the restoration of indexation benefits for debt mutual funds, which were removed in the 2024 Budget. The industry body argues that taxing debt fund gains at slab rates has significantly reduced their appeal for conservative investors, particularly senior citizens who depend on these schemes for a relatively stable income.

AMFI also believes that a more rational tax treatment for debt funds could help channel household savings into the corporate bond market, supporting long-term debt financing in the economy.

Incentives for long-term equity investing

The association has reiterated its demand to raise the equity long-term capital gains exemption beyond the current Rs 1.25 lakh. In addition, it has called for the return of a meaningful tax incentive for ELSS and retirement-oriented mutual fund products.

According to AMFI, the current tax structure inadvertently encourages shorter holding periods and frequent redemptions, rather than the patient, long-term investing culture that mutual funds are meant to foster.

Removing frictions

Alongside these long-standing demands, AMFI has highlighted several practical tax frictions that investors face in routine fund transactions. One key proposal is that intra-scheme switches, such as moving from a regular plan to a direct plan or shifting between growth and IDCW options, should not be treated as a taxable transfer.

Since the underlying portfolio remains unchanged in such cases, AMFI has argued for uniformity in tax treatment between mutual funds and ULIPs, so that investors are not penalised for operational choices that do not alter investment risk.

The association has also sought relief on TDS-related issues, proposing that the threshold for tax deducted at source on mutual fund income distribution be raised from Rs 10,000 to Rs 50,000. This, it says, would reduce refund-related hassles for small investors.

Addressing anomalies across fund categories

AMFI has also flagged concerns around the taxation of fund-of-funds that invest predominantly in equity schemes. It has requested that such funds be taxed on par with equity-oriented mutual funds, noting that they currently face higher non-equity taxation despite having similar risk exposure.

It has further asked that any reclassification of passive schemes under SEBI’s MF Lite framework be kept tax neutral, so investors are not forced to incur capital gains purely due to regulatory restructuring. In addition, the association has sought equity-style tax treatment for mutual funds that invest largely in ReITs and InvITs.

AMFI says these proposals are aimed at making mutual fund investing simpler and fairer for everyday savers. Many of the recommendations address small but persistent irritants faced by investors managing SIPs or making routine fund decisions. The association believes that removing such frictions would encourage more investors to stay invested for the long term and build wealth in a disciplined manner.

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