Summary
The Association of Mutual Funds in India (AMFI) has called on the government to reconsider recent budget proposals affecting debt mutual funds. The budget aims to amend Section 50AA of the Income Tax Act, redefining ‘Specified Mutual Funds’ and altering their tax treatment. The new definition would classify debt mutual funds as short-term capital assets regardless of the holding period, thus impacting the tax rates significantly. AMFI argues this change would disadvantage investors by eliminating long-term capital gains benefits for debt mutual funds. It proposes redefining the criteria to align more closely with existing long-term tax benefits and requests immediate implementation rather than the proposed delay until April 1, 2026.
Key Points
- The budget proposes changing the definition of ‘Specified Mutual Funds’ under Section 50AA of the Income Tax Act.
- Under the new definition, debt mutual funds would be classified as short-term capital assets, affecting their tax treatment.
- Currently, listed bonds qualify for long-term capital gains tax at 12.5% with a holding period of 12 months.
- AMFI argues that the proposed changes will disadvantage investors by reducing long-term capital gains benefits.
- AMFI suggests redefining ‘Specified Mutual Funds’ to those investing more than 90% in debt/money market instruments to better align with long-term capital gains thresholds.
- AMFI requests that the tax amendment be applied immediately rather than waiting until April 1, 2026.
- AMFI advocates for maintaining a 12.5% tax rate on long-term capital gains for debt-oriented mutual funds held over one year.
