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 on investment in debt mutual funds.
This proposal has been brought by the government through amendment in the budget of the financial year 2023-24, which has been approved by the Lok Sabha on Friday. From April 1, 2023, investment in debt mutual funds will now be taxed 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 been implemented on debt mutual funds and bank fixed deposits. At present, debt mutual fund schemes are required to invest 65 per cent 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 sale of units after redeeming a debt mutual fund before 36 months is charged as short term capital gain. However, sale of units after holding period of more than 36 months attracts long term capital gains. Long term capital gains are taxed at 20% with indexation benefit.
But after April 1, 2023, such debt mutual funds, in which the investment of the mutual fund scheme in equity does not exceed 35 percent, will be taxed according to the income tax rates. However, investors who want to take advantage of indexation can invest in debt mutual funds till March 31, 2023.
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