Government Plans to Tweak Capital Gains Tax Regime for Debt Mutual Funds

By: Admin
June 11, 2024
Categories: Income Tax News|News
4 Min Read

The government is contemplating a revision to the capital gains tax framework for debt mutual funds to provide some relief for the Bharat Bond Exchange Traded Fund (ETF). This issue was discussed in a meeting held last week in the finance ministry, as the government plans to issue a new tranche of the Bharat ETF in the current financial year. The matter is still under review, and a final decision will be made when the government finalizes the budget. An official noted, “From April 1, 2023, Bharat ETF is taxed at the slab rate like any other debt mutual funds, which could deter investors.”

Before 2023, the taxation of debt funds depended on the holding period. For holdings longer than 36 months, capital gains were taxed at 20% with the benefit of indexation. Short-term capital gains applied for holding periods less than 36 months. However, the Finance Bill 2023 changed this structure, taxing debt mutual funds with equity investments below 35% at the income tax slab rate. There is a consideration to provide an exemption for the Bharat Bond ETF.

The official mentioned that DIPAM (Department of Investment and Public Asset Management) would submit a formal recommendation to the Department of Revenue for consideration after the government formation. Furthermore, finance ministry officials are scheduled to meet with executives from public sector undertakings (PSUs) to assess their funding needs for the current fiscal year.

The Bharat Bond ETF includes bonds issued by CPSEs, CPSUs, Central Public Financial Institutions (CPFIs), other government organizations, and three private companies. Launched in 2018, these entities have raised ₹33,400 crore in debt since 2019 using the ETF platform. In December 2023, the government began the process of appointing a consultant to advise on managing the Bharat Bond ETF and issuing a fresh tranche. However, the changes in the taxation regime have become a significant concern.