The government has done away with long term capital gains tax on debt mutual funds. Any gains on debt mutual funds purchased after 1 April will be treated as short term capital gains, regardless of the holding period. The earlier favourable regime of 20% tax with the benefit of indexation for debt funds held longer than three years has been eliminated. For some mutual fund (MF) advisers and distributors, the solution is to invest in hybrid funds which are treated as equity for tax purposes. Equity funds are taxed at 10% after a 1-year holding period for gains of over ₹1 lakh in a year.
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