Long term capital gains- If you sell your investment in a debt mutual fund after 3 years of holding period, capital gains arising from such transaction is classified as a long term capital gain (LTCG) and will be taxed at long term capital gains tax rate. Long term capital gains is eligible for indexation benefit in which cost of acquisition of an asset is adjusted for changes in cost inflation index during the holding period. In case of an increase in the index, the cost of acquisition is adjusted upwards, thus reducing the quantum of capital gain and hence, capital gains tax.
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