Now that indexation and capital gains benefit of debt funds are gone, I have a query on future taxation. For someone investing from April 1, 2023, will taxes be applicable only upon selling units of debt funds or will they have to be paid upon accrued gains also?
Until March 31, 2023, income tax laws allow taxation of Debt Mutual Funds qua holding period. If such unit is redeemed on or before the completion of 36 months (three years), it is short-term capital gains taxed at slab rates.
However, if the holding period exceeds 36 months, then it is long-term capital gains where it would be taxed at 20 per cent with an indexation benefit.
As per the amendments carried out by the Finance Act, 2023 investments made in debt mutual funds (where the equity portion of the mutual fund scheme does not exceed 35 per cent) on or after April 1, 2023, will be taxed at slab rates and indexation benefit will not apply.
To clarify your query, the point of taxation remains same as earlier, gains arising out of debt mutual fund shall be chargeable to tax at the time of sale/redemption and not during the period a person is holding the units of debt funds.
After opting for the new tax regime without deductions at the start of the financial year, if I find that the old regime with deductions is suitable for me because of salary rise, bonus etc., can I change the option while filing tax returns?
The New Tax Regime (NTR) under section 115BAC of The Income Tax-Act, 1961 (‘the Act’) gives individuals and HUF taxpayers an option to pay income tax at lower rates.
An individual can choose to pay income tax under NTR or old regime, whichever is more beneficial. The NTR is available with lower tax rates but once opted, the taxpayer must forgo the deductions/exemptions available under the old regime.
From FY 2023-24 onwards, NTR is set to be the default tax regime. Hence, for salaried employees, NTR is now the standard method for calculating and depositing taxes. It implies that employers are now required to follow the rules and regulations of NTR unless employees specifically choose otherwise at the start of the year.
However, one can compute taxes under both new and old regime. Basis the same, one still has the option to select the most beneficial tax regime while filing the income tax return FY 2023-24.
While switching regime selection with your employer in the middle of the year may not be available, an individual who is a salaried taxpayer and not having any income from business/profession has the option to switch the regime chosen at the time of tax withholding to the other while filing the tax return.
The writer is a Partner with BDO India LLP
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