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 How will the proposed changes to the finance bill affect investors?


The Finance Bill 2023 proposes to change the taxation of debt mutual funds by treating capital gains as short-term capital gains instead of long-term capital gains. 

Debt mutual funds are a type of mutual fund that invests in fixed-income instruments and offer attractive returns with low risk.


Currently, long-term capital gains from debt funds are taxed at 20% with indexation benefit while short-term capital gains are taxed as per individual tax slab.


The proposed changes, once approved, would mean that capital gains from debt funds will be taxed as per individual tax slab, regardless of the holding period.


This could reduce inflows in debt mutual funds and benefit bank deposits, as well as make gold ETFs and foreign stocks/ETFs through liberalised remittance scheme more tax efficient than feeder funds.


Investors should evaluate their investment strategy and decide if they should continue to invest in debt mutual funds or shift to other instruments.

The proposed changes may result in lower post-tax returns for debt fund investors. 

Investors should be prepared to make adjustments to their portfolios in order to remain compliant with the new taxation rules.

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Debt mutual funds taxation.

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Debt mutual funds taxation: How will the proposed changes to the finance bill affect investors?

The government has proposed a major change in the taxation of debt mutual funds, which, if approved, would result in gains from these funds being taxed at the investor's income tax slab rate and the loss of long-term capital gains indexation benefits.

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