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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Debt Products

Ms. Iyer, aged 35, invests Rs 5,00,000 in a debt mutual fund that is not a specified mutual fund, bought after 1 April 2023. She redeems after 3 years with a gain of Rs 1,20,000. Her marginal rate is 30% (ignore surcharge and cess). Under the rules as taught, the tax on the gain is:

The tax is Rs 36,000. Debt fund units bought after 1 April 2023 are treated as short-term regardless of holding period, so the Rs 1,20,000 gain is taxed at her 30% slab rate. Applying 20% or 12.5% long-term rates would be wrong.

  1. ARs 15,000
  2. BRs 24,000
  3. CRs 36,000Correct
  4. DRs 0

Explanation

Units of a specified mutual fund (debt-oriented, with equity under 35%) bought after 1 April 2023 are deemed short-term gains whatever the holding period, so the gain is taxed at the slab rate. Rs 1,20,000 x 30% = Rs 36,000. Rs 24,000 wrongly uses 20% and Rs 15,000 uses 12.5%.

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