Finance act and the Way forward for debt Funds
The recent tax changes have created three categories in mutual fund taxation
In a growing economy like India, with an expanding base of investors, any investment vehicle that is built on a solid base will find a way to grow. All the more so, for an investment category that is well regulated, transparent and provides liquidity in an otherwise not-so-liquid underlying market. It is in this context that one should take note of the tax changes introduced by the government recently. The Finance Act 2023 mandates that investments in growth option of debt schemes, irrespective of their holding period, be taxed as STCG, or short-term capital gains. STCG is taxed at the marginal slab rate of the investor. Other than people in lower income tax brackets, for most investors, it is the highest slab rate. What it effectively means is that the benefit of indexation, which was available for investments in debt funds till 31 March, has been taken away.