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Finance
Published: Mar 25, 2023
Updated: Mar 25, 2023
The Indian government has recently passed the Finance Bill, which includes changes in the taxation of mutual funds. These changes will come into effect from 1st April 2023, and they will have a significant impact on the mutual fund investors. In this article, we will discuss the new taxation rules for mutual funds and analyze their implications.
The new rules state that capital gains on funds with less than 35% equity allocation,
including international, gold, and fund of funds, will be taxed at the investor's income tax slab
rate. The long-term capital gains (LTCG) and indexation benefit will be removed. However,
funds with 35%-65% equity allocation, such as balanced hybrid funds, will continue to
receive indexation benefit on LTCG.
Current investments made until 31st March 2023 in funds with less than 35% equity
allocation will continue to be taxed with indexation benefit, like before. The equity taxation
and arbitrage funds taxation will remain unchanged.
The government made these changes to bring parity between debt funds and fixed deposits in terms of taxation. Additionally, the tax benefits on international equity and gold have been removed.
The changes in the taxation of mutual funds will make investing in debt funds less attractive,
as investors will have to pay higher taxes on capital gains. Furthermore, the frequent
changes in taxation rules and last-minute amendments can affect investor sentiments and
confidence.
The new rules may also have an adverse effect on the bond market, which the government
has been trying to stimulate.
The new taxation rules for mutual funds will bring significant changes to the investment
landscape in India. It is essential to understand these changes and their implications before
making any investment decisions. Investors should consult with their financial advisors and
tax experts to plan their investment strategies accordingly.
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