When you profit from the sale of units of a debt fund, tax on the gain kicks in. The tax could be on short-term gains, gains that are on investments of less than a year and long-term, those that are on gains on investments of more than a year.
Short-term gains in case of debt funds are added to your income, and taxed according to the tax bracket that you fall in. In case of long-term gains, the applicable tax is either a flat 10 per cent on the gain or 20 per cent with indexation. As the effective tax in both the cases differ, you have the option to go with any of these two methods.
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