This Article is From Jul 25, 2014

Debt Mutual Fund: Arun Jaitley Offers Tax Relief to Investors

Debt Mutual Fund: Arun Jaitley Offers Tax Relief to Investors

A file photo of Finance Minister Arun Jaitley

Finance Minister Arun Jaitley today offered partial relief to debt mutual fund investors. Mr Jaitley said that the new tax regime will not apply to investors who undertook "transaction of sale of units" between April 1 and July 10. These means debt fund investors who sold units before July 10 will pay tax at old rate of 10 per cent, not 20 per cent, on their capital gains.

Finance Minister Arun Jaitley in the Budget proposed to increase the long-term capital gain tax on debt mutual funds from 10 per cent to 20 per cent. He also increased the minimum holding period for debt mutual funds to qualify for long-term capital gains tax to 36 months, from 12 months at present. The new tax measures were supposed to come into effect from April 1.

The finance minister today said that government will soon move an amendment for this effect. Tax expert TP Ostwal said that though the circular needs to be seen to know the full impact, on the face of it, this is only a "partial relief". Mutual fund investors who bought units last year or this year before July 10 and still hold them will face higher tax burden, he said.

How the New Tax Works

According to the new tax rules on debt funds, the investor has to hold the funds for at least 36 months to qualify for the 20 per cent capital gains tax. If the debt mutual units are held for less than 36 months, it would be taxed according to the investor's tax slab. This brings debt funds at par with bank fixed deposits in terms of taxation, if it is held for less than 36 months.