A new proposal in the Finance Bill, 2023 might remove the current benefit that debt mutual funds have, which allows them to be taxed at a lower rate of 20% with an indexation benefit for a holding period over three years. Instead, gains on redemption of specified mutual funds that invest not more than 35% in domestic equity shares, bought on or after April 1, 2023, will be taxed as short-term capital gains. This means that regardless of the holding period, capital gains from debt funds, international funds, and gold funds will be taxed according to an individual’s relevant tax slab. It is unclear if the proposed amendment will also cover funds of funds, which invest in units of other mutual funds. However, existing investments and new investments made until March 31, 2023, will not be affected by the proposed amendments and will continue to enjoy the current favorable tax rates. These changes are expected to be part of the finance bill amendments that could be introduced in the parliament on Friday.
However, it is important to note that existing investments in debt funds, international funds, and gold funds, as well as new investments made until March 31, 2023, would not be affected by the proposed amendment and would continue to enjoy the favorable long-term capital gains taxation.
As with any proposed changes to tax laws, it is important for investors to stay informed and consult with financial advisors to understand how the changes may impact their investment strategies.