Income Tax on debt mutual funds from FY 2023-24 / AY 2024-25
Income Tax on debt mutual funds from FY 2023-24 / AY 2024-25 will be taxed based on whether Mutual Funds are
i) Specified Mutual Funds
ii) other than Specified Mutual Funds
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 parliament on 24.03.2023 . read Amendment to Finance Bill 2023 Download . This article is written by CA satbir Singh (Contact us Taxheal@gmail.com )
New Change for Capital Gains Tax on Specified Debt mutual funds from FY 2023-24 / AY 2024-25
As per Amendment to Income Tax Act , 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) .
Thus the the Income Tax rate applicable would be based on the income tax slab in which the investor falls.
The new tax rules would apply to investments in Debt Mutual Funds made on or after April 1, 2023.
Section 50AA of Income tax act for Tax on Debt Mutual Funds
The Finance Bill 2023 proposed to insert a special provision of Section 50AA for the computation of capital gains arising from the transfer or redemption or maturity of specified Mutual fund or Market Linked Debenture (“MLD”). Section 50AA also provided that irrespective of the period of holding of MLDs, the capital gains arising therefrom shall be deemed to be a short-term capital gain, Section 50AA of Income tax Act is as follow
Special provision for computation of capital gains in case of Market Linked Debenture
‘50AA. Notwithstanding anything contained in clause (42A) of section 2 or section 48, where the capital asset is a unit of a specified Mutual fund acquired on or after the 1st day of April 2023 or a Market Linked Debenture, the full value of consideration received or accruing as a result of the transfer or redemption or maturity of such debenture or unit as reduced by––
(i) the cost of acquisition of the debenture or unit; and
(ii) the expenditure incurred wholly and exclusively in connection with such transfer or redemption or maturity,
shall be deemed to be the capital gains arising from the transfer of a short-term capital asset:
Provided that no deduction shall be allowed in computing the income chargeable under the head “Capital gains” in respect of any sum paid on account of securities transaction tax under the provisions of Chapter VII of the Finance (No. 2) Act, 2004.
Explanation.–– For the purposes of this section
i) “Market Linked Debenture” means a security by whatever name called, which has an underlying principal component in the form of a debt security and where the returns are linked to the market returns on other underlying securities or indices, and includes any security classified or regulated as a market linked debenture by the Securities and Exchange Board of India.’.
ii) “Specified Mutual Fund” Means a Mutual Fund by whatever name called,where not more than thirty five percent of its total proceeds is invested in the equity shares of domestic companies:
Provided that the percentage of equity shareholding held in respect of the Specified Mutual Fund shall be computed with reference to the annual average of the daily closing figures.
Capital Gains Tax on mutual funds (Other than specified Mutual Funds )
Investors in debt funds pay income tax on capital gains according to the income tax slab for a holding period of three years.
After three years these funds pay either 20% with indexation benefits or 10% without indexation.
For More Information You can visit Govt of India Income Tax website Click here
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