Tax Jolt: Are Debt Funds On A Par With FDs Now?

From April 1, 2023, there will be no tax arbitrage between bank fixed deposits (FDs) and debt mutual funds that was a major draw for debt fund investors. The amendment to Finance Bill 2023 has removed long-term capital gains tax benefits on debt mutual funds. In other words, the indexation benefit that came with debt funds won’t be available anymore. Like FDs, debt funds will also be taxed at your marginal tax slab rate. With FDs and debt funds now on a par, what should the investors do? We explore the future debt funds landscape and how it could affect buying decisions for investors. What’s Changed? In 2014, the government had changed the taxation of debt mutual funds by increasing the holding period from one to three years for tax rates on long-term capital gains to apply. So, an investor holding a debt mutual fund for more than three years had to pay 10 per cent tax...