AMFI releases industry recommendations for Union Budget 2025

has released a document with 13 proposals from the Mutual Fund Industry

As Finance Minister Nirmala Sitharaman gets ready to present the Union Budget on February 1, the Association of Mutual Funds ( AMFI) has released a document with 13 proposals from the Mutual Fund Industry.  In a media comment, Venkat Chalasani, Chief Executive, AMFI said" "We anticipate a Union Budget that prioritizes investor confidence and deepens participation in mutual funds by addressing key tax-related concerns. We look forward to a progressive budget that reinforces mutual funds as a pillar of economic development and investor wealth creation."

Here are the main proposals:

Restoring long-term indexation benefits for debt funds

Reinstating indexation benefits for long-term capital gains on debt mutual funds withdrawn in Budget 2024. Indexation adjusts gains for inflation, ensuring investors are taxed only on real gains. This withdrawal, according to AMFI,  negatively impacts retail investors, who typically rely on debt funds for stable returns.

Roll back capital gains tax rates

Roll back the increased tax rates on short-term (20 percent) and long-term (12.5 percent) capital gains to their previous levels of 15 percent and 10 percent, respectively. According to AMFI, the higher rates discourage retail participation in mutual funds, reducing their role in channelizing household savings into productive markets.

Expanding definition of equity-oriented funds

A proposal to include Fund of Funds (FoFs) that invest at least 90 percent in equity-oriented funds under the equity-oriented category. The current definitions, according to AMFI, exclude many equity-invested FoFs, leading to higher taxation compared to direct equity or equity-oriented funds. This will ensure tax parity and encourages broader participation in equity markets through mutual fund structures.

Launch pension-oriented MF schemes

AMFI is recommending that SEBI-registered mutual funds be allowed to launch pension-oriented schemes (MFLRS) with tax benefits similar to NPS under Section 80CCD. These schemes, they believe, can offer a flexible, market-linked alternative to traditional pension plans, particularly benefiting individuals in the unorganised sector. Additionally, providing similar tax incentives as NPS will attract more long-term investments and reduce dependence on foreign portfolio investors (FPIs).

Notify Mutual Fund Units as specified assets

Allowing mutual funds investing in priority sectors like infrastructure to qualify as specified assets under Section 54EC for capital gains tax exemptions. This, according to AMFI, will channel gains from property sales into infrastructure projects, reducing the government’s borrowing burden and providing investors with an option to earn market-linked returns instead of the low fixed returns from existing 54EC bonds.

Simplify offshore fund taxation

Easing conditions under Section 9A to attract offshore funds managed by Indian portfolio managers, especially in International Financial Services Centres (IFSCs).  The current safe harbor provisions, as per the document, are overly restrictive, deterring fund managers from relocating to India.

Uniform TDS surcharge for NRIs

A flat surcharge rate of 10 percent on TDS for dividends and capital gains on mutual fund units for NRIs.

Relax ELSS investment rules

Removing the restriction requiring ELSS investments to be made in multiples of Rs 500, (allowing any amount above Rs 500) will reflect the digitised investment environment, where rigid amounts are outdated. This, they believe, will ease investor participation, particularly for those reinvesting through inter-scheme switches, and eliminate operational inefficiencies for mutual funds.

Increase TDS threshold

Raising the threshold for withholding tax on income distribution by mutual funds from Rs 5,000 to Rs 50,000 per annum will reduce compliance hassles for both investors and fundhouses. According to AMFI, the current threshold disproportionately impacts small investors, leading to avoidable refunds and administrative burdens.

Adjust LTCG Tax on equity investments

AMFI recommends applying differentiated LTCG tax rates for equity investments -  10 percent for holdings of 1–3 years and exempt gains beyond 3 years.

Introduce Debt-Linked Savings Schemes (DLSS)

A DLSS will provide a safer, fixed-income investment option for retail investors while developing India’s corporate bond market. According to the note, such diversification is essential for reducing reliance on banks for corporate financing and ensuring sustainable economic growth.

Ease TDS compliance for PAN issues

By exempting mutual funds from deducting higher TDS rates when an investor’s PAN becomes inoperative after on boarding will enhance ease of doing business and reduce administrative hardships for fund houses and investors.