Capital Gain Tax: There may be exemption in capital gains tax for debt MF, Know what will be the benefit

As per the income tax amendments, the benefit of tax benefit under indexation on calculation of long term capital gains on investments in debt mutual funds ceased from 1 April 2023. After this date, investments in all types of debt mutual funds are counted in the short term category.

The central government is considering making slight changes in the rules of capital gains tax for debt mutual funds to give some relief to Bharat Bond Exchange Traded Fund (ETF). The issue came up in a meeting held in the Finance Ministry last week. The reason for this is that the government is planning to issue a new part of Bharat ETF in the current financial year.

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According to the Economic Times report, the official says that the matter is still being deliberated upon. A final decision will be taken on this when the government finalizes the budget. The official said that from April 1, 2023, Bharat ETF is taxed at slab rates like any other debt mutual fund. This can be a disappointing factor for investors. The Finance Bill 2023 changed the tax structure for debt mutual funds.

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Before 2023, the tax that was levied on debt funds was determined by the holding period. In a case where the holding period was more than 36 months, capital gains tax was exempted. Short-term capital gains tax was levied for holding period of less than 36 months. As per the income tax amendments, the tax benefit under indexation on calculation of long-term capital gains on investments in debt mutual funds ceased to be available from April 1, 2023. After this date, investments in all types of debt mutual funds are counted in the short-term category.

Tax exemption

However, after the changes made in the Finance Bill, debt mutual funds with equity investment less than 35% are taxed at the income tax rate applicable in your slab. The official said that there is a thought to give tax exemption to Bharat Bond ETF. The official said that DIPAM (Department of Investment and Public Asset Management) will now send a formal recommendation in this regard to the Revenue Department after the formation of the government.

Finance ministry officials will also meet officials of public sector undertakings (PSUs) to assess their fund requirements in the current fiscal year. The Bharat Bond Exchange Traded Fund (ETF) holds bonds issued by CPSEs, CPSUs, central public financial institutions (CPFIs) and other government organisations and three private companies. After its launch in 2018, these institutions have issued bonds using the ETF platform since 2019 and raised debt worth ₹33,400 crore.

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