The central government announced the amendments to the Finance Bill 2023 in the Lok Sabha on March 24. With over 45 amendments announced, one of the highlights was the removal of debt mutual funds from the long-term capital gains (LTCG) category directly impacting the interest rates levied on the income from it.
Finance Minister Nirmala Sitharaman announced that debt mutual funds having not more than 35 per cent invested in equity shares would be taxed at the income tax slab level. The debt mutual funds will be treated and taxed as short-term capital gain (STCG). Before the amendment, debt mutual funds were treated as LTCG attracting 20 per cent tax if held for 3 years. If an individual held a debt mutual fund for less than three years, it was considered STCG and tax would be levied according to the tax slab of the individual.
Edelweiss Mutual Fund’s MD and CEO Radhika Gupta said, “Debt funds will be significantly less attractive to consumers versus traditional instruments. We are a nation of savers and debt is an important part of people's asset allocation.” Experts opine that the new amendment could give a boost to equity mutual funds as they become more attractive despite being riskier due to their taxation as LTCG attracts lower interest rates.
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