How debt mutual funds are taxed
Why most debt-fund gains are taxed at the slab rate, and how the April 2023 cut-off changed the rules.
General educational information on Indian mutual-fund taxation — not tax or investment advice. Tax rules and figures change and depend on your individual circumstances; consult a qualified professional before acting on any of this.
Not tax or investment advice.
The April 2023 cut-off
For units of a specified mutual fund — for FY 2025-26 (AY 2026-27), a fund that invests more than 65% of its assets in debt and money-market instruments — that were acquired on or after 1 April 2023, the entire capital gain is treated as short-term and taxed at the investor's income-tax slab rate, regardless of how long the units are held (Section 50AA). There is no separate long-term rate and no indexation for these units.
The Finance Act 2024 narrowed this definition (from AY 2026-27): it now targets debt-oriented funds (over 65% in debt/money-market). Some funds caught by the older 'not more than 35% equity' test — such as certain ETFs, gold funds, and 35–65% hybrids — are no longer specified funds and follow the residual capital-gains rules instead.
Units acquired before 1 April 2023
Older units follow the earlier rules. After the Finance Act 2024, long-term gains (units held more than 36 months) on transfers made on or after 23 July 2024 are taxed at 12.5% without indexation; short-term gains are taxed at the slab rate.
Why the purchase date matters
Because the acquisition date decides the rule, the date and cost of each lot of units matter. The fund house's capital-gains statement separates lots by purchase date.
Figures are general and apply to FY 2025-26; these rules change from year to year.