As per the amendments made in Budget 2023, no benefit of indexation for the calculation of long-term capital gains tax on debt mutual funds will be available for investments made on or after April 1, 2023.
About Debt mutual funds:
- Debt funds are mutual fund schemes which invest in fixed-income generating securities such as Commercial Papers (CP), Certificate of Deposit (CD), Corporate Bonds, T-Bills, government securities and other money market instruments.
- These instruments have a fixed maturity date and interest rate that the buyers could earn till the maturity of the security.
- They are considered to be less volatile than equity funds and are hence ideal for investors who are relatively risk-averse and are looking for stability in their investments.
What is Capital Gain tax?
The capital gains tax is the levy on the profit that an investor makes when an investment is sold. It is owed for the tax year during which the investment is sold.
It applies to capital assets, which include stocks, bonds, digital assets like cryptocurrencies and NFTs, jewellery, coin collections, and real estate.
Types of capital gain tax
Long-term Capital Gains Tax: It is a levy on the profits from the sale of assets held for more than a year. The rates are 0%, 15%, or 20%, depending on the tax bracket.
Short-term Capital Gains Tax: It applies to assets held for a year or less and is taxed as ordinary income.
Q1) What Is Commercial Paper?
Commercial paper is an unsecured, short-term debt instrument issued by corporations. It's typically used to finance short-term liabilities such as payroll, accounts payable, and inventories. Commercial paper is usually issued at a discount from face value. It reflects prevailing market interest rates.