The proposals span debt, equity, retirement planning, NRI taxation and compliance-related issues, with a common objective of encouraging stable, long-term household participation in capital markets.
Focus on reviving long-term debt investing
One of the key proposals relates to restoring long-term capital gains (LTCG) indexation benefits for debt mutual funds, which were withdrawn for most schemes in Budget 2024. AMFI notes that post the Finance Act, 2023, gains on debt funds are largely taxed at slab rates irrespective of holding period, leading to a sharp decline in inflows into debt schemes.
The industry body has proposed reinstating LTCG with indexation for debt mutual funds held for over 36 months, arguing that this would restore parity with other long-term assets, incentivise conservative investors such as retirees, and channel household savings back into the corporate bond market.
Complementing this, AMFI has suggested the introduction of a Debt-Linked Savings Scheme (DLSS) with a five-year lock-in and a separate tax deduction outside Section 80C. The proposal aims to create a retail-friendly fixed-income savings avenue and deepen India’s underdeveloped corporate bond market.
Equity taxation parity and long-term holding incentives
On the equity side, AMFI has sought tax parity for Fund of Funds (FoFs) investing in equity-oriented mutual funds, noting that such FoFs are currently taxed as non-equity funds despite indirectly investing in listed domestic equities. The proposal recommends aligning their tax treatment with equity-oriented funds to remove anomalies and reflect the economic substance of the investment.
The association has also called for revisiting long-term capital gains taxation on equities, suggesting higher exemption thresholds and potential tax relief for investors holding equity mutual funds over extended periods. According to AMFI, current thresholds encourage early redemptions, leading to churn rather than long-term capital formation.
In addition, AMFI has proposed allowing separate tax deductions for ELSS investments under the new tax regime, preserving ELSS as a simple equity entry route for first-time retail investors.
Retirement-focused mutual fund products
A recurring theme in AMFI’s submission is the need to expand retirement-linked investment options through mutual funds. The industry body has recommended allowing all mutual funds to launch pension-oriented schemes with tax treatment similar to the National Pension System (NPS).
Further, it has proposed introducing a Mutual Fund–Voluntary Retirement Account (MF-VRA), modelled loosely on the US 401(k) system, with employer-linked contributions, lifecycle investing, and dedicated tax incentives. AMFI argues that such structures could enhance pension penetration, reduce future social security burdens, and align with the growing scale of India’s mutual fund industry.
Operational simplification and investor convenience
Several proposals focus on reducing operational and compliance friction. These include:
Treating intra-scheme switches (such as Growth to IDCW or Regular to Direct plans) as tax-neutral, since the underlying portfolio remains unchanged.
Removing the outdated requirement that ELSS investments be made only in multiples of ₹500, citing the shift to digital transactions.
Increasing the TDS threshold on mutual fund income distributions from ₹10,000 to ₹50,000 to reduce refund-related hardship for small investors.
Prescribing a uniform surcharge rate on TDS for NRIs, to eliminate inconsistencies across fund houses.
AMFI has also sought tax neutrality in cases such as scheme segregation (side-pocketing), scheme option consolidation, involuntary scheme winding-ups, and the hive-off of passive schemes under SEBI’s Mutual Fund Lite framework.
Capital markets and infrastructure financing
Among the broader market-linked proposals, AMFI has suggested including select mutual fund units as eligible instruments under Section 54EC, allowing capital gains from property sales to be reinvested into infrastructure-focused mutual fund schemes. The move, according to the industry body, could diversify infrastructure financing beyond government bonds and banks, while offering investors market-linked returns.
Additionally, AMFI has reiterated calls for rationalising Securities Transaction Tax (STT) and restoring earlier tax rates for certain fund categories such as arbitrage and equity savings funds, which rely heavily on derivatives for hedging.
A push for long-term financialisation
Taken together, AMFI’s proposals reflect a broader push to align tax policy with long-term savings behaviour, simplify compliance, and strengthen the role of mutual funds in retirement planning, debt markets and infrastructure financing. Whether and to what extent these recommendations are reflected in the final Budget will be closely watched by investors and the asset management industry alike.