Taxation On Mutual Funds

Important Change In Taxation For Debt Mutual Funds W.e.f 01 April 2023

  1. Till 31 Mar 2023, Debt Mutual Funds if held for more than 03 years enjoyed long-term capital gains @ 20% tax with indexation benefit.
  2. As part of amendments made in Finance Bill, 2023, w.e.f 01 Apr 2023, capital gains made on Debt Mutual Funds (with less than 35% equity exposure) will be taxed differently.
  3. Therefore, any capital gains (whether short term or long term) will be taxed as per the investor’s tax slab w.e.f 01 Apr 2023; similar to how bank fixed deposits, term deposits are currently taxed.
  4. However, the new change is estimated to have a negligible impact if any on most retail investors, as their investment duration in Debt Mutual Funds Viz. Liquid, Low Duration, Short Duration, Medium Duration is typically between 0 to 03 years.
  5. The change in tax rate will have no impact on Equity, Aggressive Hybrid, Balanced Hybrid, Balanced Advantage & Arbitrage mutual funds, since these funds will continue to have the benefit of equity taxation which is comparatively more attractive. MF investment plans of our investors constitute these funds, and pure Debt Mutual Funds (with less than 35% equity exposure), plus holding time of 03 years & beyond have not been part of the investment plans. As such, the new change need not be worried about.

For details, please see the tabulation below: –