Slab Rate on WebNotes

Indexation removal for debt MFs (Finance Act 2023)

Tue, 12 May 2026 00:00:00 +0000

Indexation removal for debt mutual funds refers to the legislative change effected by the Finance Act 2023 that eliminated the benefit of indexation – the inflation-adjustment of the cost of acquisition using the Cost Inflation Index (CII) – for units of “specified mutual funds” acquired on or after 1 April 2023. Simultaneously, the Finance Act 2023 abolished the concept of long-term capital assets for such funds, treating all gains (irrespective of holding period) as short-term capital gains taxed at the investor’s slab rate. The change fundamentally altered the competitive tax advantage that long-term debt mutual fund investment had over bank fixed deposits for investors in the higher income-tax brackets.

Taxation of debt mutual funds (post-April 2023)

Tue, 12 May 2026 00:00:00 +0000

Taxation of debt mutual funds in India underwent a fundamental change with effect from 1 April 2023 under the Finance Act 2023. Before that date, debt mutual fund units held for more than 36 months qualified as long-term capital assets and were taxed at 20% with the benefit of indexation under Section 48 of the Income Tax Act 1961. The Finance Act 2023 inserted the third proviso to Section 50AA (later renumbered as applicable amendments in the Schedule), which provides that the capital gains on specified mutual funds – those investing less than 65% of their assets in domestic equity – shall be treated as short-term regardless of the actual holding period, and shall be included in total income and taxed at the investor’s applicable income-tax slab rate. The regime for units acquired on or after 1 April 2023 is now uniformly slab-rate taxation with no indexation and no concept of long-term holding for such funds.

Taxation of gold ETFs and silver ETFs in India

Tue, 12 May 2026 00:00:00 +0000

Taxation of gold ETFs and silver ETFs in India is governed by the same framework as other “specified mutual funds” introduced by the Finance Act 2023. Gold ETFs hold physical gold (or gold-backed instruments); silver ETFs hold physical silver. Neither holds domestic equity, so both fail the 65% equity test and are classified as specified mutual funds. For units acquired on or after 1 April 2023, all capital gains are treated as short-term regardless of holding period and taxed at the investor’s income-tax slab rate. For units acquired before 1 April 2023, gains on units held for more than 36 months are LTCG at 20% with indexation under Section 112.

Taxation of international funds in India

Tue, 12 May 2026 00:00:00 +0000

Taxation of international mutual funds in India changed fundamentally with the Finance Act 2023, which classified most internationally-oriented funds as “specified mutual funds” for units acquired on or after 1 April 2023. Before that date, international funds investing in overseas equity enjoyed the same 20%-with-indexation LTCG treatment as domestic debt funds (after a 36-month holding period). From 1 April 2023, gains on new units of international funds are treated as short-term capital gains regardless of holding period and are taxed at the investor’s income-tax slab rate with no indexation benefit.