After the news of getting tax rebate on income up to ₹ 12 lakh in the new tax regime, a big question in the minds of many investors is whether this benefit will be available on the income from debt mutual funds also? Especially for those people who invest in debt funds instead of FD, it is very important for them to know what the tax rules say. Understanding these rules before filing ITR can help you save tax.
What is the new mathematics of tax on debt funds?
According to tax experts, profits from debt mutual funds (in which domestic equity stake is less than 35%) purchased after April 1, 2023, are now directly added to your regular annual income (Short Term Capital Gains). This means that no separate or fixed tax rate is applicable on debt fund earnings, rather it is taxable as per your tax slab.
Since this debt fund profit forms part of your gross total income, if your total annual income including your salary, business and debt fund profits is ₹ 12,00,000 (₹ 12 lakh) or less, then you will get full rebate under Section 87A in the new tax regime. In this situation, you will not have to pay any tax on the profits of the debt fund.
The screw may get stuck here, be careful
The biggest risk for debt fund investors is tax traps. Suppose your annual salary is ₹ 11,50,000 and you made a profit of ₹ 60,000 from debt funds this year. In this way your total income became ₹ 12,10,000. Since your total earnings have crossed the limit of ₹12 lakh, you will be completely out of the scope of rebate under Section 87A. In such a situation, you will have to pay tax not only on the portion above ₹ 12 lakh, but on the entire income as per the new tax slab.
SK Sharma is a content writer who writes on news, entertainment, and lifestyle topics. She has over four years of experience and is known for conveying information in simple and clear language.
