Quick Summary
The mutual fund (MF) industry is hopeful that the government may restore the indexation benefit for computing capital gains on the sale of debt-oriented funds. This crucial tax adjustment, which was removed in the Finance Bill 2023, is expected to be revisited in the upcoming Budget FY26, according to sources. Why the Demand for Indexation Restoration Has Strengthened The withdrawal of indexation has significantly impacted post-tax real returns for investors in debt MF schemes. Persistent hi
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FAQ :
The mutual fund industry is requesting the restoration of the indexation benefit for computing capital gains on the sale of debt-oriented funds.
The indexation benefit adjusts the cost of capital assets for inflation over the holding period, helping debt fund investors mitigate tax liabilities and improve post-tax returns.
Since April 1, 2023, capital gains on debt mutual funds are taxed at the investor's income tax slab rate, regardless of how long the investment was held.
The industry proposes aligning the capital gains tax on debt mutual funds with that of listed bonds, suggesting a 12.5% tax rate for long-term capital gains on holdings over one year.
Yes, after initially removing indexation benefits for all assets in July 2024, the government restored them for real estate properties purchased before July 23, 2024, following industry backlash.
The withdrawal of indexation has increased tax liabilities for investors, reduced real returns due to inflation, and potentially undermined investor confidence in debt funds.
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