AMFI Union Budget 2026-27 Proposal: AMFI’s 27-Point Wishlist for Union Budget 2026

The proposals span debt and equity taxation, ELSS incentives, retirement products, capital gains reforms, NRI taxation, and operational clarity. Together, they present a roadmap to make mutual funds more efficient, investor-friendly, and aligned with India’s long-term economic priorities.

A. Debt and Fixed Income Proposals

1. Restore Long-Term Indexation Benefit for Debt Mutual Funds

AMFI has sought restoration of long-term capital gains (LTCG) with indexation for debt mutual funds held for more than 36 months, a benefit withdrawn in Budget 2024.

Proposal:

• Amend Sections 2, 48, 50AA and 112 of the Income Tax Act
• Tax rate of 12.5% (without indexation) or 20% (with indexation)

Rationale:
Debt mutual funds are critical for conservative investors, especially senior citizens and retirees, who rely on predictable income and lower volatility. Removal of indexation has reduced debt fund inflows and weakened the corporate bond market. Restoring LTCG benefits would revive long-term fixed-income participation and deepen bond markets.

2. Introduce a Debt-Linked Savings Scheme (DLSS)

To expand retail participation in bonds, AMFI has proposed a Debt Linked Savings Scheme (DLSS).

Key features:

• Minimum 5-year lock-in
• At least 80% investment in high-quality debt
• Separate tax deduction outside Section 80C
• Available under the new tax regime

This would create a tax-efficient fixed-income alternative, complementing EPF, PPF and NPS, while supporting corporate debt financing.

B. Equity and Equity-Linked Proposals

3 & 4. Redefine Equity-Oriented Funds to Include Fund of Funds (FoFs)

Currently, Fund of Funds (FoFs) investing in equity-oriented schemes do not receive equity-style tax treatment.

AMFI’s proposal:

AMFI has proposed that Fund of Funds (FoFs) which invest at least 90% of their corpus in equity-oriented mutual fund schemes should be treated as equity-oriented funds for tax purposes. Although such FoFs ultimately invest in domestic equities through equity mutual funds, they currently do not receive the same tax benefits as equity funds. To remove this anomaly, AMFI has asked for a change in the wording of Section 112A of the Income Tax Act by replacing the term “another fund” with “other funds”, making it clear that a FoF can invest in multiple equity schemes without losing equity tax status. This clarification would ensure tax parity, reduce ambiguity, and encourage diversified equity investing through FoF structures.

This would remove ambiguity and ensure tax parity between direct equity funds and diversified FoF structures.

5. Remove ₹500 Multiple Restriction in ELSS

AMFI has recommended amending ELSS Rule 3 to allow investors to invest any amount in ELSS schemes, subject to a minimum investment of ₹500, instead of restricting investments to multiples of ₹500. This rule, which was introduced in the 1990s when investments were largely cash-based, has become outdated in today’s digital and automated investing environment. The restriction often leads to unnecessary transaction rejections, especially in SIPs and online platforms, and removing it would make ELSS investing smoother and more investor-friendly.

6. Rationalise LTCG Taxation under Section 112A

AMFI has proposed:

• Raising the LTCG exemption threshold
• Or exempting LTCG on equity mutual funds held for very long periods (5+ years)

This aims to encourage long-term equity investing and reduce frequent redemptions driven purely by tax considerations.

7. Separate ELSS Deduction under the New Tax Regime

With the new tax regime gaining popularity, AMFI has sought a dedicated ELSS deduction, similar to Section 80CCD(1B), with a notified cap.

This would preserve ELSS as a low-ticket equity entry point for first-time investors.

8. Restore Earlier STT Rates on Futures & Options

AMFI has requested rollback of increased Securities Transaction Tax (STT) on futures and options for mutual funds.

Arbitrage and equity savings funds rely on derivatives for hedging, and higher STT has increased costs and reduced returns.

9. Remove STT on Mutual Fund Transactions

AMFI has reiterated its long-standing demand to remove STT on mutual fund purchase and sale transactions, arguing that investors already pay capital gains tax, resulting in double taxation.

10. Equity-Style Tax Treatment for ReIT and InvIT Mutual Funds

Mutual funds investing ≥65% in ReITs or InvITs should be taxed like equity-oriented funds.

This would boost capital flows into real estate and infrastructure, sectors critical for India’s growth agenda.

11. Cap Surcharge on MF Income Distribution

AMFI has proposed capping surcharge on mutual fund income distribution at 15%, in line with dividend income from companies, instead of the current maximum of 37%.

C. Retirement and Social Security Proposals

12. Mutual Fund Linked Retirement Schemes (MFLRS)

AMFI has recommended allowing all mutual funds to launch pension-oriented schemes with:

• EEE tax treatment
• Employee and employer contributions
• Deductions similar to Section 80CCD

This would expand retirement options beyond NPS and EPF.

13. Mutual Fund–Voluntary Retirement Account (MF-VRA)

Inspired by the US 401(k) model, AMFI has proposed MF-VRA:

• Employer-linked, voluntary retirement accounts
• Lifecycle-based investment strategies
• Tax deductions under old and new regimes

This would significantly expand pension coverage and long-term capital formation.

D. Capital Gains and Investor Tax Fairness

14. Tax Neutrality for Intra-Scheme Switching

Switching between Growth and IDCW options or Direct and Regular plans within the same scheme is currently taxed as a transfer.

AMFI has sought exemption, arguing that the underlying portfolio remains unchanged.

15. Tax Parity for Consolidation of Scheme Options

While tax neutrality exists for scheme and plan consolidation, it does not explicitly cover option consolidation. AMFI wants clarity to avoid unintended tax events.

16. Notify Mutual Fund Units under Section 54EC

AMFI has proposed notifying certain mutual fund units as specified long-term assets under Section 54EC, allowing capital gains exemption when invested in infrastructure-focused MF schemes.

17. Extend Section 87A Rebate to Capital Gains

Although Budget 2025 enhanced the Section 87A rebate, it excludes capital gains.

AMFI has sought extension of the rebate to income taxed at special rates, provided total income does not exceed ₹12 lakh.

18. Receipt-Based Taxation for MF Winding-Up

In involuntary winding-up of schemes, AMFI has proposed taxing capital gains on receipt basis, similar to compulsory acquisition rules, to avoid hardship to investors.

19. Segregation (Side-Pocketing) Not to be Treated as Transfer

AMFI has requested that segregation of portfolios following credit events be explicitly excluded from the definition of “transfer” under Section 47.

E. NRI, TDS and Compliance Proposals

20. Uniform Surcharge Rate on TDS for NRIs

AMFI has proposed a flat 10% surcharge on TDS for NRIs, replacing slab-based rates that create compliance challenges.

21. Higher TDS Threshold on MF Income Distribution

The threshold for TDS on MF income distribution should be increased from ₹10,000 to ₹50,000, easing the burden on small investors.

22. Relief in TDS for Inoperative PAN Cases

AMFI has sought clarification that higher TDS should not apply if PAN becomes inoperative after onboarding, reducing investor hardship.

23. Exemption from Form 15CA / 15CB for Mutual Funds

Given existing TDS reporting, AMFI has requested exemption from filing Forms 15CA/15CB for payments to non-resident investors.

24. Clarify Section 194R for Investment Write-Offs

AMFI has sought clarity that write-offs of investments or receivables should not be treated as benefits or perquisites under Section 194R.

25. Simplify Specified Financial Transaction (SFT) Reporting

AMFI has recommended simplified SFT reporting, thresholds for smaller AMCs, and relaxation in TIN requirements for NRIs.

F. Industry Structure and Regulatory Alignment

26. Tax Neutrality for MF Lite Hive-Offs

AMFI has proposed exempting unit exchanges during MF Lite hive-offs from capital gains tax, while preserving cost and holding period.

27. Include “Mutual Fund” as a Sub-Status in ITR Forms

AMFI has suggested adding “Mutual Fund” as a sub-status in Income Tax Return forms to reduce unnecessary scrutiny and notices.

Conclusion: A Push for Long-Term Capital and Investor Confidence

AMFI’s 27 proposals collectively aim to encourage long-term investing, restore investor confidence in debt mutual funds, improve tax neutrality across investment products, reduce compliance and operational friction, and strengthen India’s retirement and capital market ecosystem. 

As household savings increasingly shift from traditional avenues towards market-linked instruments, the government’s response to these recommendations in Union Budget 2026 will be crucial in shaping the next phase of growth, depth, and stability of India’s mutual fund industry.