Is that the end of the debt mutual fund? All the changes in finance bill 2023 affecting your personal finance

Is that the end of the debt mutual fund? All the changes in finance bill 2023 affecting your personal finance | Vrid
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The finance minister has passed some new amendments in the Finance Bill 2023 regarding debt mutual funds taxation, new tax regime rebate, STT on futures & options, etc.

Let’s discuss them and check their impact on your personal finances.

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The Lok Sabha has passed the Finance Bill 2023 with 64 amendments to the bill initially introduced in the Lok Sabha on February 1, 2023. Of those 64 amendments, few might impact your personal finance the most.

Long-term tax benefits removed from debt mutual funds:

It has been proposed that investments in debt mutual funds from 1st April 2023 will be taxed as per the slab rate. The long-term capital gains tax and indexation benefit have been removed. 

Earlier, any investment in debt mutual funds held for over 3 years was considered long-term. And we had the option to pay a 10% tax directly on the returns or a 20% tax after indexation. Both these options reduced our tax liability, and many chose to invest in debt mutual funds over the fixed deposit (FD) because of this tax benefit. 

The government removing the long-term capital gains tax benefits brings the debt mutual funds returns and taxation on par with FDs. But there is a slight relief yet. 

The government removed the long-term capital gains tax from debt mutual funds that invest less than 35% in domestic equity. That means even your gold mutual funds and international fund comes under this. 

And any mutual fund that invests 35 to 65% in domestic equity (balance hybrid funds) will still be eligible for long-term capital gains. Any fund that invests over 65% in domestic equity is considered an equity mutual fund. 

Taxes on mutual fund investments after April 1, 2023, are shown in the below table. Remember, your investments in debt mutual funds before March 31st, 2023 will still get the indexation and long-term capital gains tax benefits.

Taxes on different types of mutual funds based on their investment in domestic equity and holding period after April 1, 2023 | Vrid

Small relief on new tax regime rebate:

On February 1, 2023, the finance minister announced the increased rebate in the new tax regime and other changes. We discussed it in detail here. 

In the budget, the government has increased the tax rebate from ₹5 lakhs to ₹7 lakhs. And through recent amendments, the government has passed more relief. 

Traditionally, when your income was marginally higher than the tax rebate, you had to pay full tax. Like, if your income was ₹7,00,100. It is ₹100 higher than the tax rebate, so you would be required to pay a tax of ₹25,010. 

This seemed very unfair. So, the ministry announced that individuals earning income slightly above the tax-free income of ₹7 lakhs will have to pay tax only on the additional income. That is, you will have to pay tax only on the excess ₹100.

Now, some tax experts have told, according to the calculation, individual taxpayers whose income is up to ₹7,27,777 can get the benefit of this provision. Hope as time passes, we will get more clarity on this. 

Increase in Securities Transaction Tax (STT) on Futures & Options:

The Government is raising the Securities Transaction Tax (STT) on futures and options contracts in the stock market from April 1, 2023. Options contracts will now attract 0.021% STT from 0.017% earlier, and futures will attract a levy of 0.0125%, up from 0.01%.

Also, did you know more than 95% of traders lose money?

Setting up a committee for the National Pension System (NPS):

Over the last few years, many people and state governments have raised their voices against NPS. Most of them want to bring back the old NPS system. 

In Lok Sabha, our FM Nirmala Sitharaman said we have received representations that the national pension system for government employees needs to be improved. We will set a committee under the Finance Secretary on the pension system to address the needs of employees and also maintain fiscal prudence. 

Therefore, we may see some changes in the NPS. 

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Still Curious?

If you are like us, who likes to analyse a little more or check out content in different formats, well you are in luck. Below you can find some suitable content we found.

Dezerv – Mutual Funds will never be the same

Business League – Income tax exemption: Big relief to the taxpayers

Cleartax – Lok Sabha passes Finance Bill 2023 with 50+ Amendments: Income tax and GST amendments discussed

Note: We don’t have any affiliation with them. We are sharing links only for educational purposes. The opinions expressed by them belong solely to them and do not reflect the views of Vrid.

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DISCLAIMER: This newsletter is strictly educational and is not an investment advice or a proposal to buy or sell any assets. Please be careful and do your own research.

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