1 rule changed the game, Debt Mutual Fund lost to FD! Fixed deposit overtakes in tax saving

New Delhi. Mutual Funds Right! You must have heard this sentence many times in advertisements. There can be many reasons for this, in which the main one is to save tax. In India, people usually start investing only to save tax. Their intention is that by putting their money in savings, they will be saved from tax and the fund will also be ready for the future. The government has used scissors on this main reason. After the new rule comes into force on mutual funds from April 1, 2023, FD will become more attractive in terms of tax savings.

Actually, a major category of mutual funds is debt. There is no risk of stock market in this and this category earns returns by investing in government bonds, securities or other government funds and gives good profits to its investors. Not only this, the tax rate on this category is also low. This story is till March 2023. After this, the profit from the mutual fund will be taxed according to the tax slab of the investor.

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what is the new rule
In the budget presented on February 1, the government had said that now long-term capital gains (LTCG) will not be given on debt mutual funds with less than 35 per cent equity exposure, nor will tax be charged accordingly. No matter how much time you have spent on investing in such funds. Only Short Term Capital Gain (STCG) tax will be charged on his return.

what’s wrong with that
Actually, long term capital gain (LTCG) tax is levied on the profits made by investing in a debt mutual fund for more than 3 years. Its rate is 20 percent and the benefit of indexation is also given on it. If you do not want to take indexation, then you will have to pay tax at the rate of 10 percent. Indexation simply means inflation. Simply put, an amount equal to the inflation rate is first deducted from the returns earned by debt funds on investment for more than 3 years. After that LTCG tax is charged on the remaining amount. With this, your tax savings become very high.

new testament how trouble
The new rule of mutual funds says that debt funds that invest less than 35 per cent in equity. Tax will be charged on the profits made from them as per the income tax slab. This means that profits from all mutual funds in this category will now be treated as short term capital gains (STCG) only and will be taxed as per slab. Since, the maximum income tax slab is 30 per cent. Therefore, the investor of this slab will have to pay a total tax of 35.8% on the returns made from mutual funds including surcharge and cess. No benefit of indexation i.e. inflation will be given on this.

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Where now compared to FD
According to tax experts, earlier this category of funds used to give net returns of up to 7% to the highest taxpayers even after deducting tax. At the same time, the FD giving 8% interest was also able to give 5% return after deducting tax. In the current situation, the post-tax returns on FDs have remained the same, but the post-tax net returns in this category of mutual funds have come down to 4 per cent.

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Tags: Bank FD, business news in hindi, FD Rates, income tax, mutual funds, Returns of mutual fund SIPs