Further amendments proposed to the Finance Bill, 2023, states “No benefit of indexation to debt mutual fund investment made on or after 1st April,2023 in case investment is not more than 35% in equity shares of domestic companies.”
A note from a distributor told investors that ‘this is to inform you that FY 24 Budget amendment is proposing any capital gain made on investments made after April 1, 2023 in Non Equity MFs ( Funds which have more than 35 % investment in debt ) will not be eligible for Long Term Capital Gains benefits.”
Distributors said the proposal needs to be approved by the parliament for it to become the law. However, they warned their clients to not take any chances with their investments.
Many investors were calling their advisors about the tax treatment of their debt mutual fund investments. Advisors have been telling investors that all investments made before March 31,2023 will continue to enjoy LTCG and Indexation benefits. They are asking investors to hold their debt schemes as long as possible to benefit from the concessional LTCG tax rate.
Indexation helps investors bring down taxes it takes into account the impact of inflation. It allows the use of the cost inflation index while calculating the gains. This method helps to bring down the taxation significantly, especially in an inflationary scenario. This factor was a major draw for investors to invest in debt mutual funds.
Now, debt mutual funds will be taxed like bank deposits. Interest from bank deposits is added to the income and taxed according to income tax slab applicable to the individual.