In the Finance Bill 2023, debt mutual funds investors have been given a big blow. Tax exemption on Long Term Capital Gain (LTCG) has been removed. Meaning, the long term capital gain will also be included in the total income and will be taxed according to the tax bracket in which you fall. Indexation ie inflation adjusting benefit will not be available. Talking about short term capital gain, it will be included in the total income and tax will have to be paid according to the tax slab in which the investor falls.
Let us know what changes the government has made in the rules regarding mutual funds taxation. What is the purpose of this change and how much will it affect retail investors. Also, the Finance Bill 2023 will be presented in the House today. It will take the form of law as soon as it is passed by the House. The new rules will come into effect from 1 April 2023.
The changed rules will be applicable only to such debt mutual funds, in which equity investment is maximum 35 per cent or less. This rule will apply to such funds. If 40% equity is invested in a debt fund, then this rule will not apply to it. Efforts have been made to completely bring debt funds out of the purview of LTCG. There has been no change in the tax rules on short term gains.