Mutual Fund Industry Demands Tax Reforms and Indexation Benefits in Budget 2025
In the run-up to the Union Budget 2025, the Association of Mutual Funds in India (AMFI) has identified key demands it believes will strengthen the mutual fund industry and increase investor participation. Among the top demands is the reinstatement of indexation benefits for debt mutual funds, a policy that was removed in the previous budget.
The mutual fund industry has emphasized the issue of tax, which includes capital gains tax rationalization. Indexation benefits being withdrawn for all long-term investments in debt funds made before March 2023 have been one of the big concerns, and the AMFI has sought reinstatement of this benefit.
Another key ask is to tax capital gains arising on redemption of debt-oriented mutual funds held for more than one year at a flat rate of 12.5%, which is the same rate at which listed bonds are taxed.
More Industry-wide Proposals
In addition to these, AMFI has also recommended the following to the government:
1. Equity Funds: Extend the definition of equity-oriented funds to cover fund-of-funds that invest in equity-oriented schemes.
2. Pension Schemes: Allowing all mutual funds to launch pension-oriented schemes with tax treatment similar to the National Pension System (NPS) under Sections 80CCD (1) and 80CCD (1B) of the Income Tax Act, 1961.
3. Long-Term Capital Gains Exemptions: Notifying mutual fund units as specified long-term assets eligible for exemption on LTCG under Section 54EC.
The AMFI has also suggested:
- Simplifying tax provisions for offshore funds managed by Indian portfolio managers.
- Prescribing a uniform surcharge rate for TDS on non-resident investors (NRIs).
- Amend the ELSS Rule 3A to remove the restriction that investment amounts must be in multiples of Rs. 500.
- Increasing the threshold for withholding tax on income distribution of mutual fund schemes.
- Introduce a debt-linked savings scheme to encourage long-term savings and deepen the bond market.
Industry’s Expectations from Budget 2025
The mutual fund industry is of the view that such proposals would be conducive to greater investor confidence and promote long-term savings besides helping develop the Indian bond market. Restoring indexation benefits and other taxation issues remain critical to bringing mutual fund investments in line with the larger financial growth objectives of the country.
