Budget 2026: Increase long-term capital gains exemption to Rs 2 lakh, says AMFI; here's why

Over the last two Union Budgets, the taxation framework governing mutual funds and capital market investments has undergone several changes, impacting both retail and institutional investors.

In the Union Budget 2024, presented in July after the Modi government returned to power for a third consecutive term, the government revised capital gains taxation, withdrew indexation benefits on debt mutual funds, tweaked securities transaction tax (STT), and altered the tax treatment of certain investment structures.

What is the current rule?

Under the current tax regime, long-term capital gains on equity and equity-oriented mutual funds are taxed at 12.5% on gains exceeding ₹1.25 lakh in a financial year.

What has AMFI proposed?

AMFI has proposed raising this tax-free threshold to ₹2 lakh.

In addition, the industry body has suggested a complete exemption on LTCG arising from equity mutual fund investments held for more than five years, in order to promote long-term wealth creation.

According to AMFI, the existing exemption limit has not kept pace with rising incomes, inflation, and the growing participation of retail investors in capital markets.

A higher exemption threshold, it argues, would provide meaningful relief to small investors and align tax policy with the government’s broader objective of encouraging financial savings and equity participation.

LTCG indexation for debt mutual funds: What AMFI is seeking

The industry body has proposed reinstating LTCG with indexation for debt mutual funds held for over 36 months, arguing that the move would improve post-tax returns, support senior citizens and conservative investors, and revive inflows into debt funds. AMFI believes restoring indexation would also strengthen the corporate bond market and encourage long-term fixed-income savings.