Learn · Taxes · Part 2 of 2 · 4 min read
This is the single biggest tax change covered in this series, and it's the detail promised back in Fixed Deposits vs Debt Mutual Funds: debt mutual fund units purchased on or after April 1, 2023 are taxed entirely at your income tax slab rate, regardless of how long you hold them. There is no long-term category, no indexation benefit, and no lower LTCG rate — a debt fund held for 5 years is taxed exactly the same way as one held for 5 months.
This was a significant change from the pre-2023 regime, where debt funds held over 36 months got LTCG treatment with indexation (adjusting your purchase cost for inflation, which could meaningfully reduce taxable gains). Units bought before April 1, 2023 have their own transitional rules, which is genuinely a case where you should check with a CA rather than assume a generic answer applies.
FD interest isn't taxed as a capital gain — it's taxed as "Income from Other Sources," at your income tax slab rate, every single year the interest accrues (even if you haven't withdrawn it). Banks deduct TDS on interest above a threshold, but TDS is not the final tax — you must still declare the full interest in your return and pay any additional tax due based on your actual slab.
Gold ETFs and gold mutual funds fall outside the "specified debt fund" category above, and are taxed more like the old debt-fund regime:
This is directly relevant if you're considering the kind of structural gold allocation discussed in Gold in Your Portfolio — the after-tax return on a long-held gold allocation benefits from this LTCG treatment the same way equity does, just at a different rate.
| Asset | Short-term | Long-term |
|---|---|---|
| Equity (stocks / equity MFs) | 20% (≤12 months) | 12.5% above ₹1.25L/yr (>12 months) |
| Debt MF (bought on/after 1 Apr 2023) | Slab rate, always — no long-term category | |
| Fixed Deposit | Slab rate every year (not a capital gain) | |
| Gold ETF / Gold Fund | Slab rate (≤12 months) | 12.5% flat (>12 months) |
Four common asset types, four different tax treatments — none of them identical. This is exactly why a genuine after-tax comparison between, say, a debt fund and an FD isn't as simple as comparing headline interest rates; the tax drag on each is structurally different, not just a matter of your bracket.