The Mutual Funds Association of India (AMFI) published a 27-point proposal for the Union Budget FY 2026-27, which includes a demand to provide a separate deduction for investment in ELSS under the new tax regime, restoration of long-term indexation benefit for debt schemes which was withdrawn in Budget 2024, parity of tax treatment in respect of intra-scheme conversion of units under MF schemes, and amending the definition of equity oriented funds to include funds of funds investing in foreign equity funds.
Read also | Silver ETFs offer a return of over 25% in 2026. Is it time to invest or stay cautious?
Here are some important points raised by AMFI in its proposal to the union ministry:
1. Demand for reinstatement of long-term indexation benefit for mutual fund debt schemes which was withdrawn in Budget 2024AMFI calls for the restoration of long-term capital gains (LTCG) with debt indexation Mutual Funds detained > 36 months by amending sections 2, 48, 50AA and 112 of the law (sections 2, 72, 76 and 197 of the bill). Tax rate: 12.5% (or 20% with indexation)
Debt remains a vital investment class for conservative investors who rely on it for income and relative stability, for example. elderly people. It is essential to channel retirement savings into fixed income securities to ensure that the investment needs of the elderly and retirees can be adequately met.
Similarly, a vibrant and growing debt market provides businesses and the government with increased financing flexibility and efficiently utilizes India’s large savings reserve. This will in turn promote increased financialization of Indian savings and support the country’s long-term growth. Streamlining the tax treatment of debt mutual funds can help accelerate the development of the corporate bond market.
2. Request for grant of separate deduction for investments in ELSS under the new regimeAMFI has requested the allowance of a separate deduction (on the lines of Section 80CCD(1B) of the Act (Section 124 of the Bill)) exclusively for ELSS investments under the new tax regime, with a notified ceiling.
This will preserve the ELSS as a simple and inexpensive equity entry vehicle; supports the participation of individuals in actions.
3. Request to amend the definition of equity-oriented funds to include funds of funds investing in equity-oriented fundsThe AMFI proposal states that it is requested that the definition of ‘equity oriented funds’ be revised to include investment in funds of funds which invest a minimum of 90 per cent of the corpus in shares of equity oriented mutual funds, which in turn invest at least 65 per cent in shares of domestic companies listed on a recognized stock exchange.
An equity-focused fund includes a fund that invests at least 65% of its total proceeds in shares of domestic companies. Therefore, even if FoFs invest in equity securities of domestic companies through equity-oriented funds, they do not benefit from the same tax treatment as that applicable to equity-oriented funds.
It is requested that the words “another fund” provided for in explanation (a) to section 112A of the Income Tax Act (clause 198 of the Bill) be retrospectively replaced by the words “other funds”.
It is appropriate for CBDT to clarify that an equity-oriented “Fund of Funds” can invest in multiple equity-oriented fund schemes (rather than “one other fund”) to avoid any ambiguity.
Read also | Exposure to gold and silver should be capped at 10-20% of overall asset allocation: Deepak Shenoy
4. Request for reinstatement of previous capital gains tax ratesAMFI has requested that for mutual funds as an investor, the STT on futures and options be restored to previous rates.
Arbitrage funds and stock savings funds mainly use futures and options for hedging purposes as underlying assets. The available arbitrage has now been reduced due to the increase in short-term capital gains tax. Additionally, increasing the STT on futures contracts will increase the cost of these funds.
5. Proposal to grant similar treatment to equity-oriented mutual funds for mutual funds investing in REITs and InvITs.According to the proposal, a mutual fund with at least 65% ReIT or InvIT must be assimilated to the tax treatment of equity-oriented funds.
ReITs and InvITs have the potential to provide significant amounts of stable, long-term capital to finance strategically important real estate and infrastructure sectors. An effective tax structure can stimulate demand for the above-mentioned instruments among a wide range of investors and effectively channel capital towards future large-scale projects that are vital for the country’s development.
Moreover, by investing in suitable mutual funds, investors can access ReITs and InvITs professionally.
6. All mutual funds should be allowed to launch Retirement Focused MF Schemes (MFLRS) with uniform tax treatment as NPS.The AMFI proposal states that it is a mutual fund linked pension scheme (MFLRS) with tax treatment for EEAs. Authorize employee and employer contributions with deductions under a new/parallel provision similar to Article 80 of the CCC of the law (article 124 of the bill), with notified ceilings; specify acquisition and withdrawal rules adapted to retirement.
Currently, tax benefits are only given to investments made in the National Pension System (NPS). Therefore, in order to stimulate and reward taxpayer savings, this would be a welcome step by the government.
Other key proposals submitted by AMFI include –
Request to introduce a Debt Linked Savings Scheme (DLSS) to help develop the Indian bond marketRequest for amendment of ELSS Rule 3A to allow any amount to be invested in the scheme, instead of multiples of Rs 500Taxation of long-term capital gains under section 112A of the Act (section 198 of the Bill)Introduction of a Mutual Fund – Voluntary Retirement Account (“MF-VRA”) which (similar to a 401(k) plan in the United States)Request for parity of tax treatment in terms of intra-plan conversion of units under MF plansNeed to ensure tax parity for consolidation of plan options, similar consolidation of regime and planApplication to prescribe uniform rate for deduction of surcharge on TDS in respect of NRIsRaising the threshold limit for withholding tax (TDS) on the distribution of income by mutual fundsParity of tax treatment in the event of dissociation of passive UCITS from an existing UCITS to a UCITS Lite belonging to an entity of the groupUnits of mutual funds must be notified as “specified long-term assets” eligible for exemption from LTCG under Sec. 54 CE The rebate under section 87A of the Act (section 156 of the Bill) should be extended to income taxable at special rates (such as sections 111A, 112 or 112A of the Act).Request for relaxation to mutual societies in case of deduction of TDS for cases of inoperative PANQuestion in the provisions of article 194R to be applied in the event of write-off of claims against the investor/creditors Requirement of Forms 15CA and 15CB for payment to a non-resident Taxation of capital gains in the event of involuntary redemption of mutual fund units under plan liquidation scenarios.The separation of mutual funds shall not be considered a transfer in accordance with Article 47 of the Law (Article 70 of the Bill). Include “Mutual Fund” in the “Sub-Status” drop-down list in Part A of the tax return. Removal of the securities transaction tax (STT) on purchase or sale transactions carried out on financial markets, including mutual fund shares Proposal to grant similar treatment to equity-oriented mutual funds for mutual funds investing in ReITs and InvITs. Capping of the increase rate on the distribution of income by UCITS – in the same way as the distribution of dividends
