Debt mutual fund indexation removal, Finance Act 2023

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

The Finance Act 2023 amended the Income Tax Act, 1961, to remove the indexation benefit and the concessional long-term capital gains (LTCG) tax rate of 20 percent that had previously applied to gains from debt mutual fund schemes held for more than 36 months. With effect from 1 April 2023 (for transactions on or after that date), capital gains from specified debt mutual fund schemes are taxed as short-term capital gains at the investor’s applicable income tax slab rate, irrespective of the holding period. This change fundamentally altered the after-tax return profile of debt mutual funds relative to bank fixed deposits and other fixed-income alternatives, and it significantly reduced the attractiveness of debt funds as tax-efficient long-term investment vehicles for investors in the 30 percent income tax bracket.

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Debt mutual fund indexation removal, Finance Act 2023