As per the amendments to the Finance Bill 2023 introduced in Lok Sabha for approval, any mutual fund having less than 35% equity exposure will be taxed as short term capital gain as per slab rates.
The bank lobby has worked very hard and tirelessly for this amendment as smart investors were moving funds from bank deposits and investing in debt funds because of the tax arbitrage. The interest on bank deposits were taxed at slab rates and the debt funds were getting indexation benefit and only taxed at 20% thereafter. Now there is no benefit of investing in debt mutual fund.
The amendment means that for all the debt funds, target maturity debt funds, conservative hybrid funds, gold funds, international equity funds and any other funds where equity allocation is less than 35%, period of holding is immaterial.
Any capital gain from all these funds would only be short term capital gain if purchased on or after April 1, 2023. And, it will be taxed as per the slab rates.
Please note that this is just based on a proposal / amendment in the parliament.
Our view:
We think that the amendment has been sneaked into the budget and there is a high chance of being approved as Finance Bill must get President's ascent within 60 days (by March 31) and there is no time for representation with just a week left.
With current yield at 7.4% and additional indexation year if invested before March 31, 2023, Last 7 days available for earning up to 7% after tax return.
As the money needs to be credited in the MF account by March 31, we recommend that the forms be submitted by March 29 for cheque investments.
Please contact us for any question.
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