Budget 2024 | Concept of ‘indexation’ from MFs has gone away: Edelweiss’ Radhika Gupta on new tax changes

Budget 2024: Finance Minister Nirmala Sitharaman presented her seventh consecutive budget earlier today and announced several tax changes across income slabs and capital gains on equities and mutual funds. Analyzing the changes in mutual fund investments, Radhika Gupta, Edelweiss MD and CEO of Edelweiss Asset Management Company (AMC), claimed that with this budget, the concept of indexation has gone away.

Gupta explained the changes in mutual funds (MFs) following the presentation of the Union Budget 2024 in the Lok Sabha today. The market expert said that before the Budget, mutual funds had different taxation categories.

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‘’Some mutual funds were taxed as long term and short term, some mutual funds were taxed with marginal taxation rates, and some mutual funds had this concept of indexation. With this Budget, all of this gets simplified, and the concept of indexation goes away,'' said Gupta.

The Edelweiss CEO took to microblogging platform X and remarked on Budget 2024's economic policy announcements. She said that fiscal prudence is ‘positive’, the focus on jobs is 'super positive and much needed', incentives for labour-intensive sectors are ‘positive’, and steady capex expenditure is ‘positive’.

Now, you have three categories of taxation, Radhika Gupta explained. Category one is for equity and mutual funds that have more than 65 per cent equity. They are taxed as capital assets—20 per cent in the short term and 12 and a half per cent in the long term, with long-term being anything held for more than one year.”

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Explaining the second category, the investment expert at Edelweiss said, “They are funds that hold more than 65 per cent in debt securities and are taxed at the marginal rate with no concept of short-term and long-term.” 

‘’The third category is the one that does not fit into either category, like a gold index fund or gold ETF or could be funds of fund investing in equity fund or an international fund or could be a conservative hybrid or hybrid fund. These have taxation in the short term at marginal rate, and long term is 12 and a half per cent where the long term means more than two years,” she added.

According to Gupta, the second category remains unchanged like last year, and the third category offers a “material benefit” if you are a long-term investor, although it remains the same in the short term. She said, “If you are a long-term investor, instead of attracting the marginal rate of taxation, they now attract 12 and a half per cent capital gains tax over a two-year long-term.”