Pay higher taxes on your debt, Gold & International Mutual funds now.
What has changed?
Now you have to pay Tax as per your slab rate irrespective of your holding period on the gain from your Debt, Gold, International, FOFs Mutual Funds (any MF which will have 35% or less AUM in domestic equity).
What is the Current provision?
Currently, if you hold these funds for over 3 years, it is considered a Long-term capital gain and you have to pay 20% tax after indexation. Holding less than 3 years, it’s a short-term capital gain, and it’s taxed as per your slab rate.
When this is announced?
This was not there in the original budget document. This has been announced on 22.03.2023 as an amendment to Finance Bill 2023 (Budget 2023).
When this will apply from?
Applicable from 1st April 2023.
So, whatever amount invested till now and investments to be done before 31.03.2023 continue to get long-term capital gain tax rate of 20% and indexation benefits.
Categories after this amendment in Mutual funds for Tax Purposes:
So, now there will be 3 categories of funds for tax purposes:
1. Funds holding 65% or more of Indian equity:
LTCG – 10% LTCG above 1 lakh if hold for more than one year
STCG at 15% (No change)
2. Funds holding over 35% but less than 65% of Indian equity:
LTCG – Indexation benefit and 20% tax rate
STCG – Tax as per slab rate
3. Funds holding 35% or less Indian equity:
STCG will be applicable and taxed at a Slab rate for the individual.
Final Comments:
I believe this is a terrible move from the government. Debt and Gold MFs require encouragement considering the need for this asset class in one’s portfolio as part of asset allocation, debt has already have low penetration and this move of the government will affect it badly.
Happy Reading.
Viralkumar Shah (Certified Financial Planner CM – USA)
Author – Financial Planning Sahi Hai! – Keep Your Life Organized