Will Budget 2026 lower your Mutual Fund tax bill? AMFI's pitch to FM

If you invest in mutual funds—or are planning to—Budget 2026 could reshape how much tax you pay and how efficiently your money grows.

 

India’s mutual fund industry body, Association of Mutual Funds in India (AMFI), has asked the government to roll back some recent tax changes and introduce new investor-friendly options when the Union Budget is presented on February 1 by Finance Minister Nirmala Sitharaman.

 

At the heart of AMFI’s pitch is a simple message: make long-term investing more rewarding, predictable, and retirement-friendly for retail investors.

 

Here’s how that could affect you.

 

1. A Push to Bring Back Indexation for Debt Funds

 

 

Why it matters: If you invest in debt mutual funds for stability or income, your post-tax returns have taken a hit since Budget 2024.

 

AMFI wants the restoration of indexation benefits for long-term debt funds—a tax feature that adjusts purchase prices for inflation before calculating capital gains. Without indexation, even inflation-adjusted gains are taxed as real income, reducing effective returns.

 

What it means for you:

 

• Better inflation-adjusted returns from debt funds
• Fairer taxation compared to other long-term assets
• Stronger incentive to use debt funds for long-term goals like retirement or children’s education

 

AMFI argues this will also channel more household savings into India’s corporate bond market, strengthening the broader economy.

 

2. A New “ELSS-Like” Tax Saver for Debt Investors

 

Why it matters: Today, tax benefits largely favour equity investors through ELSS funds. Conservative investors don’t get a similar option.

 

AMFI has proposed a Debt Linked Savings Scheme (DLSS)—a tax-saving debt fund on the lines of ELSS.

 

What it means for you:

 

• A tax-efficient option if you prefer lower volatility than equity
• Better balance between safety, returns, and tax planning
• More choice for risk-averse or near-retirement investors

 

3. Higher Tax-Free Limit on Equity Capital Gains

 

Why it matters: Equity investors currently pay tax once gains exceed ₹1.25 lakh a year.

 

AMFI wants this raised to ₹2 lakh, giving more breathing room to small and long-term investors.

 

What it means for you:

• Lower tax outgo if you invest gradually via SIPs
• More incentive to stay invested through market cycles
• Better net returns for disciplined, long-term investors

 

4. Zero Tax on Equity Funds Held for Over 5 Years

 

Why it matters: Long-term wealth creation depends on staying invested—not frequent churning.

 

AMFI has suggested complete LTCG exemption for mutual fund units held over five years.

 

5. Pension-Style Mutual Funds With NPS-Like Tax Benefits

 

Why it matters: Retirement planning shouldn’t force investors into one structure.

 

AMFI wants mutual funds to be allowed to offer pension-focused schemes with tax benefits similar to the National Pension System (NPS).

 

What it means for you:

 

More flexibility in retirement planning

 

Professional fund management with MF transparency

 

An alternative for investors who find NPS too rigid

 

Association of Mutual Funds in India has urged the government to reinstate indexation benefits for debt funds, and allow mutual funds to offer pension-focused schemes with tax benefits similar to NPS in forthcoming Budget for 2026-27.