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By Anshul Mar 24, 2023 1:49:51 PM IST (Updated)
Currently, investors in debt funds pay income tax on capital gains according to their income tax slab for a holding period of three years and after that, they are taxed at the rate of 20 percent with indexation benefits or 10 percent without indexation.
In a setback for debt mutual funds, the government has proposed in Finance Bill that investment in mutual fund where not more than 35 percent is invested in equity shares of Indian company will now be deemed to be short-term capital gains. This will apply to investments made on or after April 1, 2023. Also, debt funds held for more than three years will no longer enjoy indexation benefit. Additionally, they won't be eligible for 20 percent tax rate.
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Grandfathering will also not be extended to market-linked debentures.
