Now Reading: Debt mutual fund tax rules clarified
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Debt mutual fund tax rules clarified
Interest earned by a debt mutual fund scheme on its underlying securities stays within the fund and is reflected in its NAV. For units held under the growth option that are not redeemed or transferred during the financial year, no income arises in the investor's hands and no TDS is deducted.
For units acquired on or after 1 April 2023, gains on redemption or transfer are treated as short-term capital gains regardless of holding period, added to total income and taxed at the applicable slab rate. For units acquired before 1 April 2023, gains on units held for more than 24 months are long-term capital gains taxable at 12.5% without indexation, while gains on units held for 24 months or less are short-term capital gains taxed at the slab rate.
The 20% rate with indexation is no longer available for mutual fund units. A specified mutual fund is one investing more than 65% of its proceeds in debt and money market instruments.
Indian Opinion Analysis
The clarification removes ambiguity for investors who hold debt fund units under the growth option: no tax is due until redemption, even as the NAV rises. The distinction based on acquisition date before or after 1 April 2023 means two tax regimes run in parallel, and investors must track their purchase date. The answer confirms that the 20% indexed rate is dead for mutual funds, ending any hope of grandfathering for debt fund holders. Investors in specified mutual funds should check the scheme document to confirm classification and avoid surprises at redemption.
Source: thehindubusinessline.com
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