Informist, Friday, Jun 14, 2024

--Source: Budget may bring back long-term capital gains sops on debt MFs

--CONTEXT: FY24 Budget removed debt MF long-term capital gains sops

By Sagar Sen and Priyasmita Dutta

NEW DELHI – The government is looking at the option of bringing back the benefits of long-term capital gains tax for investments in debt mutual funds in the full Budget for 2024-25 (Apr-Mar), a senior finance ministry official said. The government had removed the benefit of long term capital gains for investments in debt mutual funds in the 2023-24 Budget.

"It is felt that there needs to be parity between equity and debt related mutual funds in terms of tax treatment. There have been some discussions on the matter, and it may be addressed in the upcoming Budget," the official told Informist.

Finance Minister Nirmala Sitharaman will present the full Budget in July.

The Budget for 2023-24 brought income from debt mutual fund schemes under short-term capital gains at applicable rates. The corporate bond market bore the brunt of the government's move to withdraw long-term capital gains tax benefits on debt mutual funds.

As per the new tax structure, income from mutual funds that invest not more than 35% in domestic equities would not get long-term capital gains and indexation benefits and will be taxed at an individual's tax rate for investments after Apr 1, 2023. Prior to this, capital gains from the transfer of mutual fund units held for more than three years were considered long term, and were taxed at 20% with indexation benefit.

Long-term capital gains tax benefits are available in equity-oriented mutual funds. The tax changes were originally made to bring investments in debt mutual funds at par with bank fixed deposits.

The official said to mitigate the unintended implications on the debt market, the government may streamline the long-term capital gains tax framework either through tax rate changes on such instruments or giving indexation benefits. End

Edited by Maheswaran Parameswaran

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