Debt Mutual Fund
Those investing in debt mutual funds are in for a shock. The central government has changed the rules of taxation in debt mutual funds. Finance Minister Nirmala Sitharaman brought amendments to the Finance Bill passed in the Lok Sabha. According to this amendment, the benefit of indexation will not be available in the calculation of long-term capital gain tax in debt mutual funds. From April 1, 2023, this rule is going to be applicable to investments in debt mutual funds.
In the budget of the financial year 2023-24, this proposal has been brought by the government through amendment, which has been approved by the Lok Sabha on Friday. From April 1, 2023, investment in debt mutual funds will now have to pay tax on investment profits as per the income tax rates applicable to the investor.
After this decision of the government, the rule of uniform tax has come into force on debt mutual funds and bank fixed deposits. Currently, debt mutual fund schemes are required to invest 65 percent of their corpus in debt securities as per SEBI regulations.
Till March 31, 2023, the income tax law applies to debt mutual funds on the basis of the holding period. Any gain on the sale of units after redeeming a debt mutual fund before 36 months is charged as a short-term capital gain. However, the sale of units after a holding period of more than 36 months attracts long-term capital gains. Long-term capital gains are taxed at 20% with an indexation benefit.
But after April 1, 2023, such debt mutual funds, in which the investment in the equity of the mutual fund scheme does not exceed 35 percent, will be taxed as per the income tax rates. However, investors who want to take advantage of indexation can take advantage by investing in debt mutual funds till March 31, 2023.