India's mutual fund industry is preparing for important changes. The AMFI (Association of Mutual Funds in India) has released a detailed 27-point wishlist for the union budget for the fiscal year 2026-27.
One key part of the AMFI proposal is to allow a special tax deduction for investments in ELSS under the new tax system. Another point is to reintroduce indexation for debt mutual funds. These AMFI Budget 2026 demands aim to make investing fairer and boost retail participation.
AMFI is not stopping there. They are pushing for parity in taxing intra-scheme switches in Mutual Funds and tweaking the equity-oriented funds definition to cover fund of funds investing overseas in equities. If you invest in mutual funds, keep an eye on Budget 2026. The proposals in this budget could change how you manage your portfolio.
Primary AMFI Proposals for Mutual Fund Tax Reforms
Let us break down the highlights from AMFI's submission to the finance ministry. These focus on fixing pain points for everyday investors.
- Restore Long-Term Indexation for Debt Mutual Funds
AMFI wants LTCG indexation back for debt schemes held over 36 months, scrapped in Budget 2024. Amend Sections 2, 48, 50AA and 112 for a 12.5% rate (or 20% with indexation).
Debt mutual funds are lifelines for conservative individuals, like senior citizens, who need a steady income. A strong debt market helps save money by investing in bonds, supports business funding and promotes growth in India. Fair tax treatment could greatly improve the corporate bond market.
- Separate ELSS Deduction in the New Tax Regime
AMFI has asked for a new tax break exclusively for investments in ELSS (Equity Linked Saving Schemes) under the new tax system, similar to the existing deduction in Section 80CCD (1B) of the Act.This deduction would have a specified limit.
This change would keep ELSS as a simple and affordable way for people to invest in the stock market, helping to maintain interest from retail investors in equities.
- Expand Equity-Oriented Funds Definition
AMFI has asked to update the Budget 2026 to include fund of funds with 90% in equity-oriented schemes (65% domestic equities). It also said to swap another fund to other funds in Section 112A historically. CBDT clarification is needed to allow multi-fund investments without tax headaches.
Right now, these FoFs miss out on equity tax perks despite heavy domestic equity exposure.
- Revert Capital Gains Tax Rates
AMFI has another proposal to lower the transaction tax back to its previous rate on futures and options. This tax change is essential because arbitrage and equity savings funds use these tools to manage risks, but the higher taxes have reduced their profits.
- Equity-Like Tax for ReITs/InvITs Mutual Funds
If funds invest more than 65% in ReITs (Real Estate Investment Trusts) or InvITs (Infrastructure Investment Trusts), treat them like equity mutual funds. This helps to direct money into real estate and infrastructure, which are important sectors for growth, through well-managed mutual funds.
- Launch Pension-Focused Mutual Fund Schemes
AMFI also said to introduce MFLRS (Mutual Fund Linked Retirement Schemes) that offer EEE tax benefits, similar to the NPS (National Pension Scheme). Allow both employers and employees to make contributions under a new section like 80CCD, with rules specific to retirement.
Must Read: Tax on Mutual Funds: Complete Guide with Smart Saving Plans
More AMFI Budget 2026 Demands Worth Watching
AMFI packed in plenty more mutual fund tax reforms, Budget 2026 ideas:
- Roll out the Debt Linked Savings Scheme (DLSS) to grow India's bond market.
- Flex ELSS Rule 3A for any investment amount, not just Rs 500 multiples.
- Tweak Section 112A for LTCG taxability.
- Create a Mutual Fund Voluntary Retirement Account (MF-VRA), US 401(k)-style.
- Equalize intra-scheme switching taxes.
- Match tax on scheme/plan consolidations.
- Uniform NRI TDS surcharge.
- Raise the mutual fund income distribution TDS threshold.
- Tax parity for passive scheme hive-offs to group "Lite" funds.
- Classify mutual fund units as assets that are exempt from Section 54EC.
- Expand the Section 87A tax rebate to include special rates (111A, 112, 112A).
- Simplify TDS rules for inactive PANs.
- Resolve issues with write-offs under Section 194R.
- Eliminate the need for Form 15CA/15CB for payments to non-residents.
- Clarify capital gains on forced redemptions in scheme wind-ups.
- Exempt scheme segregations under Section 47.
- Add "Mutual Fund" to the ITR Part A dropdown.
- Scrap STT on mutual fund unit trades.
- Cap surcharge on mutual fund income distributions.
These AMFI Budget 2026 demands could transform how Indians save and invest. From ELSS deduction new tax regime perks to debt mutual funds indexation restoration, they are all about fairness and growth.
