Let's understand the new tax rules for debt mutual funds and how capital losses are set-off
12-Apr-2023 •Ravi Banagere
How is short-term capital gain or loss on debt mutual funds calculated? Is indexation used in calculation? Can both gain or loss be set-off with normal income or capital income? - Jagdish Singh
As per the amended Finance Bill, capital gains on debt mutual funds (whether short-term or long-term capital gains) will now be added to your income and taxed according to your tax slab, regardless of the holding period.
Previously, if you sold your debt fund after holding it for three years, it was taxed at 20 per cent after indexation benefit was provided. Unfortunately, the benefit of indexation is no longer applicable for investments in these funds made on or after April 1, 2023.
It's crucial to note that these new regulations will only apply to fresh investments made on or after April 1, 2023. Existing investments will not be affected by the changes.
Setting-off capital losses
How to know capital gains are short-term or long-term?
The holding period decides whether capital gains are categorised as short-term or long-term. For non-equity-oriented mutual funds, such as debt mutual funds,
If you miss setting-off your capital losses, you can carry them forward for up to eight years. This implies that this year's loss can be set-off against gains that you incur in the next year. Furthermore, old losses claimed within the last eight years can also be carried forward and set-off against the present year's gain.
Suggested read: How to set-off capital losses against the gains?