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How are debt funds taxed?

Debt fund gains attract tax? What is the rate of taxation for debt funds?

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3 Approved Answers

Vaneet

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

  • Applicable on debt mutual funds held for a period of 36 months or less
  • Tax is calculated as per the income tax slab of the individual, i.e. 5%, 20% or 30% on the amount of gain

Tax on long term capital gains

  • Applicable on debt mutual funds held for more than 36 months
  • Tax is calculated at the rate of 10% without indexation or 20% with cost indexation on the amount of gain. 

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.

Pijush Kanti Biswas

Taxes upon debt mutual funds are of two types depending upon the period for which they are held.

These two types are:

1.  Short-term Capital Gain tax:

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.

2. Long-term Capital Gain tax:

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.

Happy investing!

Tanya

Debt funds are liable to be charged for two types tax depending on the time period for which they are held.

  • Short term capital gain- Debt funds held for less than 3 years are put under short term investments. In this case, tax is charged as per the income slab rate of the investor.
  • Long term capital gain- Debt funds held for more than 3 years are put under long term investments. These are charged at a rate of 10% without indexation or 20% with indexation.

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.
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