SEBI Recommends LTCG Relief for Mutual Fund Scheme Switches, Report Says
Varda Khade
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Last Updated: 2nd November 2026 - 02:55 pm
Key Takeaways
- SEBI has reportedly recommended that switching between mutual fund schemes should not be treated as a taxable sale where the existing units have been held for more than one year.
- The recommendation forms part of SEBI's pre-Budget representations to the government and is not binding.
- Existing capital-gains tax rules continue to apply unless the government accepts the recommendation and changes the tax framework.
The Securities and Exchange Board of India has recommended tax relief for domestic mutual fund investors who move money from one scheme to another, according to a Reuters report carried by Moneycontrol, Mint, Business Standard and The Economic Times on 2 November.
Under the reported proposal, switching from one mutual fund scheme to another would not be treated as a taxable sale for long-term capital gains purposes when the units being switched have been held for more than one year.
At present, such a switch is generally treated as a redemption from the existing scheme followed by an investment in another scheme, which can trigger a capital-gains tax liability. The prevailing long-term capital gains tax rate on qualifying securities is 12.5%, while short-term gains are taxed at 20%.
The mutual fund proposal accompanies a broader SEBI recommendation seeking removal of LTCG tax for foreign portfolio investors. The regulator's suggestions have been submitted ahead of the Union Budget and a final decision rests with the government.
No tax rule has changed at this stage. Any exemption for mutual fund switches would require the government to accept the recommendation and set out the applicable conditions through the tax framework.
The proposal is particularly relevant given the scale of India's mutual fund industry. Industry assets stood at ₹82.64 lakh crore as of September 2026, according to AMFI data.
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