AMFI urges FM to roll back capital gain tax hike, provide indexation benefit for debt funds

The Association of Mutual Funds in India has urged the Finance Minister Nirmala Sitharaman to reinstate the indexation benefit for debt mutual fund schemes or provide grandfathering of investment provision till July 23 besides retaining the old STT rates on F&O for mutual funds.

Debt Mutual Funds on long-term average basis give returns of 6-8 per cent and the removal of indexation benefit will have material impact on Debt MF, it said.

• Also read: SEBI directs AMFI to stop inflows into overseas schemes of MFs from April 1

Investors are already taxed at marginal rate since last April which has already hurt them significantly. Now, removal of the indexation benefit for grandfathered investment before March last year will hurt old investors also, said AMFI. “We believe applying the new tax rates on a retrospective basis can be detrimental to investor confidence and deter new investors from entering capital markets and the existing ones to make further investments in the capital markets through MFs as these investors had invested in the funds based on the tax rates prevalent at the time of their investments,” it added.

Old STT rates

Requesting for retaining old STT rates on F&O, AMFI said arbitrage funds and equity savings funds use F&O as the underlying assets for hedging. The available arbitrage has now reduced due to increase in short-term capital gain tax. Further, the increased STT on futures will add to the cost of these funds and dent investors returns.

AMFI has also proposed that capital gains on debt mutual funds held for more than a year be taxed at 12.5 percent, similar to listed bonds to encourage retail investor participation.

• Also read: AMFI knocks on SEBI doors to resolve KYC impasse

On the amendment of Section 50AA of the IT Act from April 1, 2026, AMFI said it should be implemented with immediate effect. The anomaly that was created by the wordings included in the last Budget had adversely impacted the tax implication for investors in these funds and they have to be provided immediate relief. Continuing with the anomaly for another two years will only add to the investor woes and penalise them unfairly, it said.

The Budget has increased short-term capital gains tax to 20 per cent from 15 per cent, increasing tax liability by 30 per cent. The revision of long-term capital gains tax from 10 percent to 12.5 per cent has increased tax liability by 25 per cent. AMFI has requested the government to roll back the hike to encourage MF investments, which are crucial for financialisation of savings and supporting economic growth.