Currently, debt mutual funds are treated as long-term investments if held for more than three years and taxed at the rate of 20% along with indexation benefits or 10% without indexation. For those with a holding period of less than three years, they are taxed according to their tax slab.

If the proposed amendment to the Finance Bill gets cleared, investments across duration will be taxed at the investor's slab rate and there will be no indexation benefits. This is in line with the tax structure of bank fixed deposits.

The amendment has also proposed to remove long term capital gains taxation for gold ETFs and international funds, which have the same tax structure as debt schemes at present.

The changes, if vetted, are applicable from 1 April 2023. Investors who want to take advantage of the proposed changes can do so before year-end.

Radhika Gupta, managing director and chief executive officer at Edelweiss MF, tweeted: I hope the proposed change in the Finance Bill to remove LTCG with indexation status on debt funds is reviewed. Financialization is just happening in India and a vibrant corporate bond market needs a strong debt MF ecosystem. The success of a program like Bharat Bond and target maturity funds in the last year was just the beginning of what could have been a lot of innovation in the bond category.

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