“Hello experts, I need a quick clarification on mutual fund taxation. If I redeemed a debt mutual fund / conservative hybrid fund that was purchased after April 1, 2023, does it fall under Section 50AA as a ‘Specified Mutual Fund’? If so, are the capital gains strictly treated as Short-Term Capital Gains (STCG) taxed at my regular income slab rate, or can they be taxed at a flat 20% LTCG? Assuming no other income and total gains under ₹12 lakh, does it qualify for the Section 87A rebate under the New Tax Regime?”
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Yes, broadly speaking.
For a Specified Mutual Fund covered under Section 50AA, units acquired on or after 1 April 2023 are generally treated as giving rise to short-term capital gains , irrespective of the actual holding period. The gains are therefore taxed at your applicable slab rate , not at the 20% LTCG rate.
If you have no other income and your total taxable income, including these gains, is within the applicable Section 87A threshold under the New Tax Regime , the rebate may be available, subject to the specific conditions of Section 87A.
One important point: the exact classification depends on whether the fund meets the statutory definition of a “Specified Mutual Fund” , so it is worth checking the fund’s portfolio/composition and the relevant assessment year before filing.
If the debt mutual fund has been sold on or after 1st April, 2023 the gains arising from those redemption will be treated as STCG and would be taxable at slab rate irrespective of the period of holding. The benefit of rebate udner section 87A would be available against such STCG.