Worried about removal indexing benefits in the long term capital gains from debtgold and foreign equity mutual fund? Investors have a small chance until March 31, thanks to a major provision in the revised law. If you made an investment before the law went into effect on April 1, that investment will be eligible for the existing tax benefits.
Certified Public Accountant Karan Batra pointed out that the amendment specifically says the new tax will apply to mutual fund units “purchased on or after April 1, 2023”.
“If someone buys debt fund before March 31, the investment will enjoy indexing benefits until it is sold,” he said. If you are planning to invest in debt, gold or global funds, make sure to do so by March 31 to get the benefit of indexing and lower taxes.
What has changed…
Right away, short term profit from investments held for less than three years are added to the investor’s income and taxed at the usual flat rate. But if the investment is held for more than three years, the return is classified as long-term capital increase and taxed 20% after indexing. The indexing takes into account consumer inflation during the holding period and accordingly increases the purchase price of the asset. This in turn reduces taxes. In times of very high inflation, the benefits of indexing can significantly reduce actual taxes.
This will change from April 1, when the amendment to the law goes into effect. Like short-term gains, long-term gains from funds with less than 35% invested in domestic equities will be added to investors’ income and taxed at the usual flat rate.
… And what yet
Although the new rule has eliminated some debt funds, they still enjoy certain advantages over fixed deposits. First, the gains made on these funds can be offset by short-term and long-term capital losses on other investments. So, if you have losses on stocks or gold, you can adjust them for returns on debt funds.
There is also no TDS in debt funds. For term deposits, if interest income exceeds Rs 40,000 in a year, the bank will deduct 10% of TDS. Taxpayers who do not have to pay taxes will have to file a Form 15H or 15G to get rid of the TDS. In addition, debt funds allow partial withdrawals, unlike fixed deposits where the entire investment is closed.
Certified Public Accountant Karan Batra pointed out that the amendment specifically says the new tax will apply to mutual fund units “purchased on or after April 1, 2023”.
“If someone buys debt fund before March 31, the investment will enjoy indexing benefits until it is sold,” he said. If you are planning to invest in debt, gold or global funds, make sure to do so by March 31 to get the benefit of indexing and lower taxes.
What has changed…
Right away, short term profit from investments held for less than three years are added to the investor’s income and taxed at the usual flat rate. But if the investment is held for more than three years, the return is classified as long-term capital increase and taxed 20% after indexing. The indexing takes into account consumer inflation during the holding period and accordingly increases the purchase price of the asset. This in turn reduces taxes. In times of very high inflation, the benefits of indexing can significantly reduce actual taxes.
This will change from April 1, when the amendment to the law goes into effect. Like short-term gains, long-term gains from funds with less than 35% invested in domestic equities will be added to investors’ income and taxed at the usual flat rate.
… And what yet
Although the new rule has eliminated some debt funds, they still enjoy certain advantages over fixed deposits. First, the gains made on these funds can be offset by short-term and long-term capital losses on other investments. So, if you have losses on stocks or gold, you can adjust them for returns on debt funds.
There is also no TDS in debt funds. For term deposits, if interest income exceeds Rs 40,000 in a year, the bank will deduct 10% of TDS. Taxpayers who do not have to pay taxes will have to file a Form 15H or 15G to get rid of the TDS. In addition, debt funds allow partial withdrawals, unlike fixed deposits where the entire investment is closed.
