The Lok Sabha today passed amendments to Finance Bill, 2023, in which Finance Minister Nirmala Sitharaman has done away with the long-term capital gain tax benefit that debt mutual fund investors currently enjoy. According to the amendments, debt funds having not more than 35% invested in equity shares would be taxed at the income tax slab level and treated as short term capital gain. Bank fixed deposits are also taxed similarly.
As of now, debt mutual funds are treated as long-term investments if held for more than 3 years and taxed at the rate of 20% along with indexation benefits or 10% without indexation. For those with a holding period of less than 3 years, they are taxed according to their tax slab.
The amendment to the Finance Bill, which will now be sent to the Rajya Sabha, is also applicable for gold, international equity and even domestic equity fund of funds (FoFs). The changes would be applicable from April 1, 2023 and therefore, investors who want to take advantage of the proposed changes can do so before year-end.
Shares of mutual fund companies were trading lower after the news on Friday. Shares of HDFC AMC, Aditya Birla Sun Life AMC and UTI AMC were trading lower by around 4% each.