Debt fund gains attract tax? What is the rate of taxation for debt funds?Asked
Debt funds are taxed on the basis of time period for which they are held. This can be classified into two ways:
Tax on short term capital gains
Tax on long term capital gains
Indexation means that the purchase price of the fund is adjusted with respect to effect of inflation in the economy. This helps you to pay lower taxes on your capital gain.
Taxes upon debt mutual funds are of two types depending upon the period for which they are held.
These two types are:
This is applicable on debt mutual funds held for a period of 36 months or less i.e. anything less than 3 years. In short-term capital gain tax, tax on funds is calculated as per income tax slab of the individual, i.e. 5%, 20% or 30% on the amount of gain.
This is applicable on debt mutual funds held for a period of 36 months or more i.e. anything more than 3 years. In long-term capital gain tax, tax on funds is calculated at the rate of 20% with cost indexation on the amount of gain. Indexation is the adjustment of your purchase price with respect to effect of inflation in an economy and helps you to pay low taxes on your capital gain.
Hope you understand about how debt funds are taxed. For checking out with example, visit hyperlink.