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Query: Tax benefit of Debt based mutual funds over FD

Category: Mutual Fund

Answer: What are the tax benefits for debt based mutual funds instead of FD?

Date Posted 27-Nov-2019
Posted By Kumar Prakash
Views: 1285



Admin On 27-Nov-2019
In FDs, the full interest accrued every year whether we receive it or not is taxed each year based on the income slab for which you are eligible irrespective of the maturity date falling in that year or in future. In case of debt funds, we are liable to pay taxes also only on the redeemed amount only in the year we redeem it. It will be treated as Short Term Capital Gains (STCG) tax if we hold the investment in debt mutual funds for less than three years and Long-Term Capital Gains (LTCG) for investments beyond three years. In case of short term capital gain we have special rates of 15% which are less than higher slabs of 20-30%. And in case of LTCG , it would be eligible for indexation benefits wherein we are taxed only on the returns which are over and above the inflation rate. This helps to manage less taxes and also cash flow management.

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