Summary of this article
Rationalise mutual fund taxation to create parity across equity, equity-oriented funds and debt funds, encouraging long-term participation.
Incentivise SIPs and retirement-linked mutual funds with tax benefits to promote disciplined, lifelong investing.
Provide personal tax relief and regime clarity to boost disposable incomes and reduce uncertainty in financial planning.
Reward patient capital by extending favourable tax treatment to long-term and pension-oriented mutual fund investments.
As India heads into the Union Budget 2026, there is an important opportunity for the government to reinforce its commitment to strengthening household financial well-being, deepening investment culture, and making market-linked savings more attractive for a broader section of society. With millions of Indian households increasingly shifting from traditional savings to capital markets and mutual funds, this Budget must recognize the critical role of personal finance in driving inclusive economic growth.
Stable And Predictable MF Taxation
First, mutual funds, the gateway for millions of retail investors into the equity and debt markets, deserve a clearer, fairer and more predictable tax framework. Today, capital gains from equity funds are taxed at 12.5 per cent above the Rs 1.25 lakh exemption limit, while debt funds face less attractive treatment compared with other fixed-income instruments.
“Rationalizing this tax regime to offer parity between direct equities, equity-oriented funds and debt funds’ long-term gains would encourage more households to stay invested for longer horizons. It would address a core concern highlighted by the mutual fund industry, which has called for reinstating favourable tax treatment and restoring investor confidence disrupted by recent changes,” says Sachin Jain, Managing Partner, Scripbox.
Boosting SIPs And Retirement Funds
Second, the Budget must incentivize systematic investment plans (SIPs) and retirement-linked mutual fund solutions that promote disciplined long-term investing across age groups. India’s demographic dividend and growing financial literacy present a strategic moment to integrate tax-efficient retirement savings vehicles into the formal ecosystem, including mutual fund-linked retirement schemes with NPS-like tax benefits. Such steps would not only deepen capital markets but also help millions plan for retirement in an era of rising healthcare costs and longevity risk.
Income Tax Relief
Third, personal income tax relief remains central to boosting disposable incomes and channelling savings into productive assets. “Simplifying slabs, increasing standard deductions, and providing targeted incentives for first-time mutual fund investors or long-term holders can stimulate broader participation. Clarity around the future of the old versus new tax regime also remains critical to eliminating uncertainty in personal financial planning, a factor that influences investment behaviour across demographics,” says Jain.
Favourable Tax Treatment For Pension Funds
Fourth, extending favourable tax treatment to pension-oriented mutual fund offerings, and considering exempting long-term capital gains on investments held beyond longer thresholds, such as five years, will align Indian policy with global best practices that reward patient capital and reduce volatility. Such policy design can catalyze growing India’s retirement savings ecosystem while supporting deeper, more stable markets.
Ultimately, the Union Budget 2026 should not only bolster economic growth but also empower individuals to build wealth responsibly and sustainably. By prioritizing tax clarity, fostering long-term investment through mutual funds, and making personal finance inclusive and straightforward, the government can help usher in a new era of financial confidence for Indian households.
