Gains on sale of Debt Funds and Equity Funds are treated differently, let’s see how. Equity Funds are those funds that invest heavily in Equities, usually exceeding 65% of their total portfolio.
The holding period that defines whether your asset shall be considered long term or short term is different for Debt and Equity Funds.
- Equity Funds are considered Short Term Capital Assets when held for 12 months or less.
- Debt Funds* are considered Short Term Capital Assets when held for 36 months or less.
These changes are effective 11th July 2014. Therefore, when Debt Funds are sold on or before 10th July 2014, they will have the same treatment as Equity Funds and be considered short term capital assets if holding period is of 12 months or less.
Now lets see how are Short Term and Long Term Gains taxed on Equity & Debt Funds.
| Effective 11th July | On or Before 10th July | ||||
| Short Term Gains | Long Term Gains | Short Term Gains | Long Term Gains | ||
| Debt Funds* | At tax slab rates of the individual | At 20% with Indexation | At tax slab rates of the individual | 10% without indexation or 20% with indexation whichever is lower | |
| Equity Funds | 15% | Nil | 15% | Nil | |
Note that surcharge and cess will be also applicable, on your total tax payable.
*Simply all the non-equity funds.
These budget announcements may end up changing your financial plan regarding holding of your debt funds portfolio, since they will now be long term if held for more than 36 months. Do plan your tax outgo accordingly.