What is the current taxation on “Bharat Bond ETF” and “Bharat Bond FOF” for both STCG and LTCG?
Also Please provide duration of holding required for LTCG to be applicable
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Hi @mayuragala
3 years is the holding period to determine tax applicability. (less than 3 years- STCG and more than 3 years - LTCG)
Similar to debt funds, STCG will be taxed as per slab rate and LTCG will be taxed at 20% without indexation benefit.
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@Meher_Smaran isn’t 20% indexation on LTCG on Debt funds abolished post Apr-2023 after last years announcement? This is for new purchases, pre-announcement continue the old taxation.
Hey @Chirag1 @Meher_Smaran,
Yes, after 1st April 2023, indexation benefits will no longer be available on debt funds. They will be taxed as short-term gains per the slab rate irrespective of the holding period.
However, the investments made before 1st April 2023 will be taxed as per previous rules only, i.e. indexation will be available on LTCG(holding period> 3 years).
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There was amendment in last budget regarding debt LTCG, so you will find tons of articles that are not updated.
All new purchases after 1-Apr-2023 do not have the old taxation benefits.
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Hi @mayuragala,
As per our understanding, the new rule is applicable on Mutual Funds and not ETFs. Hence, in the case of ETFs indexation benefits will still be available.
Hope this clarifies!
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That opens a big can of worms
@Quicko
If debt etf is exempted according to Quicko, you mean to say that other ETFs like liquidbees and GILT5YBEEs which are among 15 traded ETFs are also going as per old taxation benefit?
There are certain cases like liquidbees that payout periodically, which can be taken as income for that year like FD but it’s inconsistent where interest is reinvested. I think even Bharat bond also reinvests.
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Going by what is written in section 50AA, this seems to be the case (in case of a literal interpretation). But it would be really strange in some cases e.g. for investments done on / after April 1, 2023, this would imply capital gains in say Motilal Oswal NASDAQ 100 ETF will be taxed along with indexation benefits (post holding period of 3 years) and CG in similar investment in Motilal Oswal NASDAQ 100 FoF will be taxed at marginal tax rate irrespective of holding period.
@Quicko : Is that the correct interpretation? TIA.
can you provide the wordings of 50AA?
@Quicko - According to me, ETF is just a Mutual Fund which is listed technically. I think same rules would apply to both.
The taxation of equities ETFs is the same as that of equity shares and equity-oriented mutual funds
The benefits of holding for a prolonged tenure are not available for gold, debt, and international ETFs. Post the amendment in the Finance Bill on April 01, 2023, assessing tax liability for gold, debt and international ETFs based on their holding period has become irrelevant since they are now classified as short-term capital assets and, hence, taxed at the existing income tax slab rates.
Hey @tarun2,
According to our interpretation of section 50A, the change would be applicable to deft MFs and MLDs. However, things will be more clear once we start filing for the upcoming AY.
Not an tax expert, but I doubt this would be correct.
If this was indeed the case, al MF houses would have flooded the market with debt ETF to take advantage of this.
Whereas fact is after the rule change even new series of BharatBond has not been launched.
So anecdotally this statement does not make sense.
Also, Zerodha fund house recently launched a liquid etf and this is what they say about taxation:
So I don’t think debt ETF will get any special treatment.
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+1 i had same opinion.
Yes for sure, there would’ve been tons of debt etfs by now 
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