Union Budget 2025: AMFI calls for rollback of capital gains tax hike to boost mutual fund investment

The Association of Mutual Funds in India (AMFI) has called for changes in tax policies impacting mutual fund investors ahead of the Union Budget 2025. The proposals aim to boost participation in debt and equity markets, and promote long-term savings.

Key tax proposals

Restore long-term Capital Gains (LTCG) tax benefits for debt funds

AMFI has urged the government to tax capital gains on debt mutual funds held for more than 12 months at 12.5%, similar to listed bonds. Currently, the Finance Act 2023 classifies all gains on specified debt funds as short-term, leading to higher tax rates.

“India needs a robust bond market to support its aspirations of becoming a global economic leader. Retail investor participation in debt markets is essential, and aligning the tax treatment of debt funds with listed bonds can drive this growth,” AMFI emphasised.

Rollback of increased capital gains tax rates

AMFI has requested the reinstatement of previous tax rates on short-term and long-term capital gains. The hike in short-term rates from 15% to 20% and in long-term rates from 10% to 12.5% has raised investor tax liabilities significantly.

“Increasing tax rates discourages over 5 crore mutual fund investors from diversifying their portfolios. Restoring earlier rates will ensure continued investment in productive assets,” AMFI stated.

Reduction in Securities Transaction Tax (STT) for arbitrage and equity savings funds

AMFI seeks to reinstate earlier STT rates for futures and options trading, used by arbitrage and equity savings funds for hedging. The recent increase in STT has reduced arbitrage opportunities and raised costs for these funds.

Broader expectations for Budget 2025

Venkat Chalasani, Chief Executive of AMFI, said, “We anticipate a Union Budget that prioritises investor confidence and deepens participation in mutual funds by addressing key tax-related concerns. Restoring indexation benefits for debt funds and rationalszing the capital gains tax regime, as well as the introduction of a Debt-Linked Savings Scheme, can bolster long-term savings and develop the Indian bond market.”