The Indian government is currently considering a revision in the capital gains tax structure for debt mutual funds. This change could potentially provide relief for the Bharat Bond Exchange Traded Fund (ETF).

What Happened: A finance ministry meeting held last week discussed the possibility of changes to the capital gains tax for debt mutual funds, as reported by the Economic Times. The government is mulling over issuing a new tranche of the Bharat ETF within this fiscal year, and the proposed tax changes could influence this decision.

The matter is currently under scrutiny, with a final decision expected to be made when the government finalizes the budget. “Bharat ETF from April 1, 2023, is taxed at the slab rate like any other debt mutual funds and this could be a dampener for the investors,” an official told ET.

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The Finance Bill 2023 brought about changes in the tax structure for debt mutual funds. Prior to these changes, debt funds were taxed based on the holding period. The new alterations, however, tax debt mutual funds, where equity investments are less than 35%, at the income tax rate applicable in your slab.

The official further added that the Department of Investment and Public Asset Management (DIPAM) will forward a formal recommendation to the Department of Revenue for consideration after the government formation.

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