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Tax Implications on Debt Funds

Manoj Mangla wants to know the long- & short-term tax implications on capital gains from debt funds

I want to know the tax implications of capital gains from debt funds. What is long-term capital gain and short-term capital gain? What are the taxes to be paid on them? Do all debt funds have the same implications?
-Manoj Mangla

If a mutual fund is held for less than one year, it classifies as a short-term capital asset and if it is held for more than one year, it becomes a long-term capital asset. The gains arising from the sale of a short-term capital asset are called short-term capital gains and the gains arising from the sale of a long-term capital asset are called long-term capital gains.

All debt funds are taxed similarly where capital gain is concerned. Only in case of dividend distribution tax, liquid schemes have a different tax rate than all other debt funds. The short-term capital gain on debt funds is added to the taxable income of an individual and is taxed as per the applicable tax slab. Long-term capital gain is taxed at 11.33 per cent without indexation or 22.66 per cent with indexation.

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