Investments in debt mutual funds have to be made by 31st Mar, 2023 to enjoy preferential tax treatment:
1. Capital Gains from Specified debt mutual funds will be taxed as short term capital gains in India, according to amendments to the finance bill 2013 passed in Lok Sabha on 24.03.2023.
2. Mutual funds with less than 35% investment in domestic equities are proposed to be treated as short-term and the indexation benefits will be removed prospectively (w.ef AY 2024-25 onwards) .
3. Thus the the Income Tax rate applicable would be based on the income tax slab in which the investor falls.
Thus, following important aspect emerge out of this amendment:
1. Debt mutual funds with less than 35% investment in equity would be affected by this amendment.
2. This amendment would be applicable only to investments made on or after 1st April, 2023. Thus existing investments/ new investments made before 1st April, 2023 would still enjoy indexation benefits on sale after 3 years and a beneficial tax rate of 20% with indexation benefit.
3. However in respect of investments made on or after 1st April 2023, any capital gain arising from sale would be regarded as short term capital gain (irrespective of whether the investments are sold after the end of 3 years or not).
4. Thus they would be taxed at normal income tax rates applicable to individuals. However the gains can be set off against other short term losses incurred by the assessee.
So to enjoy the preferential tax treatment, investment in debt mutual funds have to be made before 1st April, 2023.
TaxByte by CA Aniket Kulkarni
