The Association of Mutual Fund of India (AMFI) has released a 27-point proposal for Union Budget FY 2026-27, which includes a request 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for investment in ELSS under the new tax regime, restoration of long-term indexation benefit for debt schemes which was withdrawn in Budget 2024, parity in tax treatment in respect of Intra-scheme switching of units under MF schemes, and amend definition of equity oriented funds to include fund of funds investing in equity overseas funds.
Here are a few critically important points made by AMFI in its proposal to the union ministry:
1. Request to restore the long-term indexation benefit for debt schemes of mutual funds which was withdrawn in the Budget 2024
Table of Contents
- 1. Request to restore the long-term indexation benefit for debt schemes of mutual funds which was withdrawn in the Budget 2024
- 2. Request to provide a separate deduction for investment in ELSS under new regime
- 3. Request to amend the definition of Equity Oriented Funds to include fund of Funds investing in Equity Oriented Funds
- Mutual Fund Taxation & regulatory Proposals (as of January 21, 2026)
- 1. Payment to Non-Residents
- 2. Capital Gain Taxation on Involuntary Redemption of Mutual Fund Units (Winding Up of Schemes)
- 3. Segregation of Mutual Fund Schemes & Section 47 of the Income Tax Act
- 4. Inclusion of “Mutual Fund” in ITR Part A – ‘Sub Status’
- 5. Securities Transaction Tax (STT) on mutual Fund transactions
- 6. Taxation of Mutual Funds Investing in REITs and InvITs
AMFI has requested to restore long‑term capital gains (LTCG) wiht indexation for Debt Mutual Funds held > 36 months by amending Sections 2, 48, 50AA and 112 of the Act (Section 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 depend on it for income and relative stability eg. senior citizens. Channelling Retirement savings into fixed income is key to ensure senior citizens’ and retirees’ investment requirements can be suitably met.
Similarly, a vibrant and growing debt market gives corporations and the government increased funding flexibility and efficiently utilizes India’s deep savings pool. This in turn will promote the increased financialization of India’s savings and support the contry’s long-term growth. Rationalization of tax treatment for Debt Mutual Funds can help accelerate the development of the corporate bond market.
2. Request to provide a separate deduction for investment in ELSS under new regime
AMFI has requested to provide 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 cap. This will preserve ELSS as a simple, low‑ticket equity entry vehicle; sustains retail participation in equities.
3. Request to amend the definition of Equity Oriented Funds to include fund of Funds investing in Equity Oriented Funds
The proposal by AMFI said that it is requested that the definition of ”equity Oriented Funds” be revised to include investment in Fund of Funds schemes which invests a minimum of 90% of the corpus in units of equity Oriented Mutual Fund Schemes, which in turn invest minimum 65% in equity shares of domestic companies listed on a recognised stock exchange.
While an equity-oriented fund includes a fun
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Mutual Fund Taxation & regulatory Proposals (as of January 21, 2026)
This document summarizes key proposals and current regulations related to the taxation of mutual funds in India, based on information available as of January 21, 2026. The information is compiled from official sources and verified news reports.
1. Payment to Non-Residents
Mutual fund distributions to non-resident investors are subject to Indian tax laws.The applicable tax rate depends on the Double Taxation Avoidance Agreement (DTAA) between India and the investor’s country of residence,if any. If no DTAA exists, the standard rates apply as per the Income Tax Act, 1961. [Income Tax Department – TDS on Payment to Non-Resident]. Recent amendments have focused on streamlining the reporting requirements for such payments.
2. Capital Gain Taxation on Involuntary Redemption of Mutual Fund Units (Winding Up of Schemes)
When a mutual fund scheme is wound up, the redemption of units is generally treated as a capital gains event for investors. The nature of the capital gain (short-term or long-term) depends on the holding period of the units. [PRS Legislative Research – The Finance Bill 2023 (relevant provisions)]. As of January 2026, the taxation remains consistent with established principles, with gains calculated as the difference between the sale price (redemption price) and the cost of acquisition. The holding period for long-term capital gains is typically 36 months for listed equity-oriented funds.
3. Segregation of Mutual Fund Schemes & Section 47 of the Income Tax Act
The segregation of a mutual fund scheme into separate portfolios or series is not considered a transfer under Section 47 of the Income Tax Act. This means that such segregation does not trigger a capital gains tax event. [Taxmann – Section 47 of the Income Tax Act]. This provision aims to facilitate the restructuring of schemes without imposing immediate tax liabilities on investors. Section 70 of the Finance Bill (as referenced in the original text) likely pertains to amendments clarifying this position.
4. Inclusion of “Mutual Fund” in ITR Part A – ‘Sub Status’
The Income Tax Return (ITR) form now includes “Mutual Fund” as an option in the ‘Sub Status’ dropdown menu in Part A. This change, implemented in ITR forms starting from Assessment Year 2024-25, simplifies the reporting of income from mutual fund investments. [Taxscan – ITR Forms AY 2024-25 Released]. This allows the Income Tax Department to better track and analyze investments in mutual funds.
5. Securities Transaction Tax (STT) on mutual Fund transactions
As of January 21, 2026, there have been ongoing discussions regarding the removal of Securities Transaction Tax (STT) on transactions in financial markets, including units of mutual funds. However, STT remains applicable as of this date. [Economic Times – STT Removal Discussions]. The government has been considering this measure to boost market participation, but no final decision has been implemented.
6. Taxation of Mutual Funds Investing in REITs and InvITs
Mutual funds investing in Real Estate Investment Trusts (REITs) and Infrastructure investment Trusts (InvITs) are generally treated similarly to equity-oriented mutual funds for taxation purposes. This means that gains from such investments are subject to the same capital gains tax rates as equity investments,provided the fund meets certain investment criteria.