A debt fund's tax edge used to be a lower rate and is now only a later date, and the expense ratio decides what the date is worth
The short answer
A gain on debt fund units bought on or after 1 April 2023 is short-term however long the units are held and is taxed at your slab rate: section 50AA of the Income-tax Act 1961, and for sales from 1 April 2026 section 76 of the Income-tax Act 2025. Two later changes matter as much. Since 1 April 2025 the rule catches a fund with more than 65 per cent in debt and money market instruments, or a fund of funds with 65 per cent or more in such funds, not a fund with 35 per cent or less in equity, so gold, overseas and equity fund of funds structures left it. And units bought before April 2023 did not keep indexation: sold on or after 23 July 2024 they pay 12.5 per cent plus cess on the whole gain after 24 months. On illustrative inputs, at the 30 per cent slab with a 0.30 per cent expense ratio, the fund used to overtake a deposit in the first month past 36. Now it overtakes only by deferring the tax: after 5.6 years, or 8.4 at the 20 per cent slab and 19.1 at 10 per cent, and never once the expense ratio exceeds the yield multiplied by the tax rate.
The usual summary of debt fund tax is one sentence: indexation was removed in 2023. It is true of new money and misleading in three ways. The rule is keyed to two dates, not one, so a unit bought before April 2023 is taxed differently from one bought after it, and differently again depending on whether it was sold before or after 23 July 2024. The definition that decides which funds are caught was rewritten for sales from April 2025, and the section that carries it was renumbered in April 2026. And the change did not leave the fund a smaller version of its old advantage over a bond or a deposit. It left a different kind of advantage: when the tax is paid, not how much.
Every statutory provision below was read in its Gazette of India text, and every number was computed in the build of this page from stated inputs or measured on the exchange's index files. The closing note says how.
Three rules, keyed to the day you bought and the day you sell
Section 50AA entered the 1961 Act through section 24 of the Finance Act 2023, with effect from 1 April 2024. It reaches a unit of a specified mutual fund acquired on or after 1 April 2023 and deems the whole gain, the sale price less the cost and the expenses of the sale, to arise on a short-term capital asset, whatever section 2(42A) says about holding periods and section 48 about indexation. No special rate attaches to a short-term gain of that kind, so it is added to income and taxed at the slab.
Units bought before 1 April 2023 were never inside the section. They stayed on the ordinary rules, and those rules then moved underneath them. The Finance (No. 2) Act 2024 limited the indexation proviso of section 48 to transfers before 23 July 2024, cut the rate in section 112 from 20 to 12.5 per cent for transfers on or after that date, and shortened the holding period in section 2(42A) from 36 months to 24, with 12 for any security listed on a recognised stock exchange once it deleted the words that had kept units out of that test. The only asset allowed to keep the old computation was land or a building bought before 23 July 2024, and only for a resident individual or Hindu undivided family.
| Units bought | Sold | Long-term after | Long-term gain | Short-term gain |
|---|---|---|---|---|
| Before 1 April 2023 | Before 23 July 2024 | 36 months | 20% on the gain over indexed cost | Slab rate |
| Before 1 April 2023 | On or after 23 July 2024 | 24 months, or 12 if listed | 12.5% on the whole gain, no indexation | Slab rate |
| On or after 1 April 2023 | Any date | Never | Does not arise | Slab rate, whatever the holding |
The middle row is the easiest to get wrong. Units bought before April 2023 are sometimes described as grandfathered with indexation. They were protected from section 50AA, not from the 2024 changes: sold today after 24 months, they pay 12.5 per cent plus cess on the nominal gain.
The test moved from equity to debt, and the section moved with the new Act
The 2023 definition looked at the wrong side of the portfolio. A specified mutual fund was one with not more than 35 per cent of its total proceeds in the equity shares of domestic companies, measured on the annual average of the daily closing figures. That caught debt funds and everything else with little Indian equity in it: gold funds and gold exchange traded funds, overseas funds of funds and, on the words, domestic funds of funds, which hold units rather than shares. The memorandum to the Finance (No. 2) Bill 2024 named the damage, citing exchange traded funds, gold mutual funds and gold ETFs, and an ambiguity over funds of funds.
Section 21 of the Finance (No. 2) Act 2024 substituted a definition built on debt, in force from 1 April 2026 for assessment year 2026-27, which is the year of sales made from 1 April 2025. A specified mutual fund is now a mutual fund that invests more than 65 per cent of its total proceeds in debt and money market instruments, or a fund that invests 65 per cent or more of its total proceeds in units of such a fund. The share is the annual average of the daily closing figures, and debt and money market instruments include any security SEBI classifies or regulates as one.
The Income-tax Act 2025 replaced the 1961 Act on 1 April 2026 and carried the rule across unchanged as section 76, which also still covers market linked debentures and, since 23 July 2024, unlisted bonds and debentures. The holding periods moved to section 2(101), the 12.5 per cent rate to section 197 and the equity fund rates to sections 196 and 198. The Finance Act 2026, assented to on 30 March 2026, amended none of them, although AMFI's suggestions for that Budget had asked for long-term treatment with indexation to return for debt funds held more than 36 months.
For a unit bought after March 2023 the move out is worth a great deal: a gold exchange traded fund sold from 1 April 2025 after more than 12 months, the period for a listed security, pays 12.5 per cent plus cess rather than the slab, and an unlisted gold or overseas fund of funds does the same after 24 months.
Where the arithmetic lands, route by route
Take ₹10,00,000 and give every route the same effective yield before tax, 7.00 per cent a year, so that only tax and cost differ; a quoted deposit rate has to be restated on that basis first, as the guide to treasury bill yields shows. The fund charges an illustrative expense ratio of 0.30 per cent for a direct plan and grows at 6.70 per cent. The Cost Inflation Index grows 4.5 per cent a year; the notified index went from 317 for 2021-22 to 376 for 2025-26, 4.36 per cent a year. The marginal rate is 31.2 per cent, the 30 per cent slab with cess; the old long-term rate is 20.8 per cent with cess and the current one 13.0. The deposit's interest is taxed as it accrues. The bond is bought at par at issue and held to maturity, each coupon taxed in the year it arrives and the rest reinvested at the same yield. All of these inputs are illustrative.
| Route | 1 year | 3 years and a month | 5 years | 10 years |
|---|---|---|---|---|
| Deposit, or a government bond held to maturity | ₹10,48,160 (4.82% a year) | ₹11,56,072 (4.82% a year) | ₹12,65,138 (4.82% a year) | ₹16,00,574 (4.82% a year) |
| Fund, old rule: bought before April 2023, sold before 23 July 2024 | ₹10,46,096 (4.61% a year) | ₹12,05,544 (6.25% a year) | ₹13,54,542 (6.26% a year) | ₹18,37,867 (6.28% a year) |
| Fund bought before April 2023, sold now | ₹10,46,096 (4.61% a year) | ₹11,92,575 (5.88% a year) | ₹13,33,210 (5.92% a year) | ₹17,94,039 (6.02% a year) |
| Fund bought on or after 1 April 2023 | ₹10,46,096 (4.61% a year) | ₹11,52,289 (4.70% a year) | ₹12,63,504 (4.79% a year) | ₹16,27,930 (4.99% a year) |
Under the old rule a fund held three years and a month ended ₹49,472 ahead of the deposit on ₹10,00,000, 1.43 percentage points a year after tax, because indexation left little to tax: 20.8 per cent of an indexed gain came to 7.1 per cent of the nominal gain. The same holding bought today ends ₹3,783 behind. Units bought before April 2023 and sold now sit between the two: 13.0 per cent of the whole gain is more than 20.8 per cent of a gain shrunk by indexation, and far less than the slab. The deposit and the bond are identical here because both pay tax on their income every year; what separates them lies outside the rate.
Measured: how little of the gain indexation left to tax
The model's inflation rate is an input. The exchange's own files show what the old rule did to a real government bond portfolio. The Nifty Composite G-sec Index is a total return series of government bonds, coupons included. Taking its close on the last session of each month in the site's index files as a purchase and its close 37 months later as a sale gives 68 holdings, bought from October 2015 to May 2021 and all sold before indexation ended on 23 July 2024. Each is charged 0.30 per cent a year for costs and indexed with the Cost Inflation Index notified for its years of purchase and sale.
| Measure | Median | Range |
|---|---|---|
| Return a year after the 0.30% cost, before tax | 6.82% | 3.67% to 9.68% |
| Growth of the Cost Inflation Index a year | 4.11% | 2.98% to 6.26% |
| Old rule: tax as a share of the nominal gain | 10.37% | 0% to 13.80% |
| Holdings with no indexed gain to tax | 12 of 68, all bought from March 2020 to March 2021 | |
| Holdings bought in March, indexed for four years | 6 of 68 | |
| After-tax return a year, old rule | 6.18% | 3.67% to 8.57% |
| The same holdings taxed today at 10.4% | 6.15% | slab rate on the whole gain |
| The same holdings taxed today at 20.8% | 5.48% | slab rate on the whole gain |
| The same holdings taxed today at 31.2% | 4.79% | slab rate on the whole gain |
The median holding paid 10.37 per cent of its nominal gain in tax, never more than 13.8, and 12 of the 68 paid nothing because the Cost Inflation Index rose faster than the holding: an indexed loss, which under the old rule was a long-term capital loss that could absorb other long-term gains. The 6 holdings bought at the end of March show the old calendar at work: sold at the end of April three years later, each collected four years of indexation for three years and a month of holding. Taxed today, the same holdings pay the slab on the whole gain, 31.2 per cent at the top, three times the old median. The cost of the change rises with the slab. At 10 per cent it barely registers, 6.15 per cent a year against 6.18; at 20 per cent it costs 0.70 percentage points a year, and at 30 per cent 1.39.
The break-even was a date; now it is a race against the expense ratio
Against a deposit, a fund taxed only at redemption keeps one structural advantage: its income compounds untaxed until the sale, while the deposit's is taxed every year. Set against it is the expense ratio, which the deposit does not charge. After n years the fund holds 1 + (1 − t)((1 + y − c)n − 1) per rupee and the deposit (1 + y(1 − t))n, where y is the yield, c the expense ratio and t the marginal rate. The fund can only catch up if it compounds faster than the deposit after tax, which means c must be smaller than y times t: 2.18 percentage points at 31.2 per cent, 1.46 at 20.8 and 0.73 at 10.4. When it is, the crossing comes late.
| Expense ratio | Now, 10.4% | Now, 20.8% | Now, 31.2% | Old rule, 31.2% |
|---|---|---|---|---|
| 0.10% | 5.6 years | 3.2 years | 2.4 years | 2 years 5 months |
| 0.30% | 19.1 years | 8.4 years | 5.6 years | 3 years 1 month |
| 0.50% | 48.7 years | 15.2 years | 9.5 years | 3 years 1 month |
| 0.80% | never | 31.3 years | 17.0 years | 3 years 1 month |
| 1.00% | never | 51.0 years | 23.7 years | 3 years 1 month |
Under the old rule the answer at the 20 and 30 per cent slabs was the first month past 36 for every expense ratio in the table, except at 0.10 per cent and 31.2, where deferral alone got there at 2 years 5 months. At the 10 per cent slab even the old rule was not automatic: 37 months at a 0.10 per cent expense ratio, 9 years 2 months at 0.30 and never above that, because 20.8 per cent of an indexed gain can exceed 10.4 per cent of the interest. Units bought before April 2023 and sold now overtake the deposit at 2 years 1 month at the 30 per cent slab.
Read the expense ratio column as the gap between the deposit's yield and the fund's yield after costs. A fund whose portfolio yields 0.20 more than the deposit and charges 0.50 sits on the 0.30 row. The table is about that gap, not about expense ratios alone.
Deferral has a second edge the table leaves out: the fund's gain is taxed at the rate of the year of redemption, not the rates of the years in between. The ten-year holding above is worth ₹16,27,930 after tax at 31.2 per cent; redeemed in a year whose marginal rate is 20.8 per cent, it is worth ₹17,22,849, against ₹16,00,574 for the deposit taxed at 31.2 per cent throughout. Redemptions spread across several years spread the gain across several years' slabs in the same way.
What still separates a fund from the bond and the deposit
When the tax falls. A systematic withdrawal of ₹6,000 a month from ₹10,00,000 in the fund realises ₹2,473 of taxable gain in its first year, because each redemption is mostly the return of cost, taken first in, first out. A deposit paying ₹70,000 of interest over the year is taxable on all of it. The difference is timing, not forgiveness: the gains taxed later are larger. An income distribution option undoes it. Distributions are income from other sources, taxed at the slab in the year paid, with 10 per cent deducted at source above ₹10,000 a year under section 393(1) of the 2025 Act, and since the Finance Act 2026 no interest can be deducted against them.
Which losses it can absorb. A fund's gain is a capital gain and interest is not, and the set-off rules run by head. Under section 108 of the 2025 Act, as under section 70 of the 1961 Act, a short-term capital loss can be set off against any capital gain, and under section 111 one carried forward for up to eight years can too; section 109 keeps capital losses away from every other head. A long-term capital loss absorbs only long-term gains, so it cannot touch a section 76 gain. An investor carrying short-term losses from shares can use them against a debt fund's gain and cannot use them against interest.
A direct holding keeps one rate advantage. A listed bond sold after more than 12 months produces a long-term gain at 12.5 per cent. Take ₹10,00,000 of a listed 10-year bond with a 7 per cent coupon, bought at par and sold on a coupon date two years later after yields fall a point: priced at 6 per cent with 16 half-years to run it fetches 106.28, a gain of ₹62,806 taxed at ₹8,165 with cess. The same gain inside a fund's NAV costs ₹19,595 at 31.2 per cent. Coupons are taxed at the slab on both routes, and an unlisted bond has been inside section 76 since 23 July 2024. The surcharge above ₹50,00,000 of income is capped at 15 per cent on gains taxed under sections 196, 197 and 198, which include that bond gain; a section 76 gain, like interest, carries the full surcharge.
| Fund bought since April 2023 | Bond held directly | Bank deposit | |
|---|---|---|---|
| When income is taxed | Once, at redemption | Each coupon, in its year | As interest accrues, with tax deducted at source above a threshold |
| Can absorb capital losses | Short-term ones | Not the coupons; a sale gain can | No |
| Price gain after 12 months | Slab rate | 12.5% if listed; slab if unlisted | Does not arise |
| Getting out | The NAV fixed by the cut-off time, the money paid within three working days under SEBI's rules; an exit load inside the scheme's window | The market's bid in a thin order book | Premature withdrawal at the bank's penalty |
| Rates and defaults | NAV moves with duration; a defaulted paper can be side-pocketed; credit spread across issuers | Price moves with duration; one issuer's credit, the sovereign's for a government bond | Rate fixed for the term; DICGC cover to ₹5 lakh per depositor per bank |
| Running cost | The expense ratio, taken daily, plus the commission in a regular plan | Bid and offer spread | Inside the rate offered |
The funds on the line, and how each is taxed now
Two tests decide every fund that holds a mix. The debt test is section 76. The equity test is section 198(8) of the 2025 Act, formerly section 112A: at least 65 per cent of total proceeds in shares of Indian companies listed on a recognised stock exchange, measured on the annual average of the monthly averages of opening and closing figures, or for a fund of funds, 90 per cent in an exchange traded fund that itself holds 90 per cent in such shares. Equity-oriented units pay 20 per cent within 12 months and 12.5 per cent on long-term gains above ₹1,25,000 a year. A fund that meets neither test falls to the ordinary rules: the slab for 24 months, or 12 if listed, and 12.5 per cent after. The two tests are averaged differently, and neither reads a label. Which side of either line a fund is on is decided by what it held across the year.
| Category | What the category allows | Caught by the 2023 test | Test met now | Tax now |
|---|---|---|---|---|
| Debt funds, overnight to long term, gilt, debt index funds | Debt and money market instruments | Yes | Debt, above 65% | Slab, whatever the holding |
| Conservative hybrid | 10 to 25% equity, 75 to 90% debt | Yes | Debt, above 65% | Slab, whatever the holding |
| Balanced hybrid | 40 to 60% each, no arbitrage | No | Neither | Slab to 24 months, then 12.5% |
| Aggressive hybrid | 65 to 80% equity | No | Equity, if 65% sits in listed Indian shares | 20%, then 12.5% above ₹1,25,000 |
| Arbitrage, equity savings | At least 65% equity and equity related, much of it hedged | No | Equity | 20%, then 12.5% above ₹1,25,000 |
| Dynamic asset allocation, multi-asset | Managed; multi-asset holds at least 10% in each of three classes | Depends | Depends on the year's averages | Any of the three regimes |
| Debt-oriented fund of funds | Debt schemes | Yes | 65% or more in debt funds | Slab, whatever the holding |
| Income plus arbitrage fund of funds | Debt schemes up to 65%, the rest arbitrage schemes | Yes, on the words | Neither, while debt schemes stay below 65% | Slab to 24 months, then 12.5% |
| Gold or silver exchange traded fund | Listed units | Yes | Neither | Slab to 12 months, then 12.5% |
| Gold, silver or overseas fund of funds | Unlisted units | Yes | Neither | Slab to 24 months, then 12.5% |
| Life cycle fund | A glide path from 65 to 95% equity down to 5 to 20% | Created in 2026 | Changes along the glide path | Read year by year |
The fund of funds row is where the category rules and the drafting meet at a single number. SEBI's framework for funds of funds with several underlying schemes, sent to AMFI on 30 June 2025 and annexed to the February 2026 circular, lets an income plus arbitrage fund of funds hold debt-oriented schemes up to 65 per cent. The tax definition catches a fund of funds at 65 per cent or more, while a fund that holds bonds directly is caught only above 65. A fund of funds at the top of its permitted band is inside section 76; one kept below 65 per cent on the annual average is outside it, and its units turn long-term after 24 months. The schemes launched in the category describe their debt leg as below 65 per cent.
The life cycle funds created by the same circular cross the equity line by design. Their glide path holds 65 to 95 per cent in equity more than 15 years from maturity, 65 to 80 per cent from 15 years to 10, and 50 to 65 per cent from 10 to 5, a band whose ceiling is the equity test's floor. Inside five years the circular allows arbitrage of up to 50 per cent on top while total equity and equity related holdings stay within 65 to 75 per cent, which can put the fund back on the equity side. The regime a redemption falls into depends on the year it is made and on the scheme's averages, not on its name.
Where the arithmetic stops being the answer
Equal yields are an assumption. A fund's yield moves with the market and its NAV with rates, while a deposit's rate is fixed for its term. The comparison holds for the yield gap put into it and no other.
The redemption year's slab is a forecast. Deferral is worth more if the rate at redemption is lower than the rate while the money compounds, and less if it is higher.
Switching resets the clock. A switch from a regular plan to the direct plan of the same scheme, or between schemes, is a redemption and a fresh purchase. Units bought before April 2023 that are switched come back as units bought on the switch date, inside section 76. Only a consolidation of schemes or plans carried out by the fund house is exempt, under section 70(1)(zj) and (zk) of the 2025 Act. Reinvested income distributions are new units bought on the day of reinvestment, and a redemption sells the oldest units first.
Surcharge, rebate and the old tax regime are outside the model. Each changes the marginal rate the table assumes, and the new regime's rebate interacts with income taxed at the normal rates.
What a debt fund is for now
A debt fund is no longer a tax product with a bond portfolio inside it. For money held three years or more it used to beat a deposit on the rate alone. For units bought since April 2023 the rate is the same, and what remains is a set of properties: tax deferred to a year the holder chooses, gains that can absorb short-term capital losses, daily exit at the portfolio's price, credit spread across issuers, all paid for with an expense ratio that the arithmetic shows can cancel the deferral for a decade or more. Which of those is worth the cost turns on the holding period, the slab now and at redemption, and the fund's yield after costs against the deposit's, and each of them is a number to compute rather than a feature to believe. Reading the rule from the section and the answer from the inputs, rather than from a fund's label, is the method this curriculum teaches.
Frequently asked questions
Do debt mutual funds still get indexation?
No. For units bought on or after 1 April 2023 in a fund with more than 65 per cent in debt and money market instruments, the gain is short-term however long the units are held and is taxed at the slab rate, under section 76 of the Income-tax Act 2025, formerly section 50AA of the 1961 Act. Units bought earlier lost indexation too: sold on or after 23 July 2024, their gain is long-term after 24 months, or 12 if the units are listed, and taxed at 12.5 per cent plus cess on the nominal gain.
I bought debt fund units before April 2023. How are they taxed if I sell now?
They stay outside section 76, so the ordinary rules apply. Held for more than 24 months, or 12 if the units are listed, the gain is long-term and taxed at 12.5 per cent plus cess with no indexation; held for less, at the slab rate. The 20 per cent rate with indexation applied only to sales before 23 July 2024. A switch to another plan or scheme sells the units, and the new ones count as bought on the switch date.
What exactly is a specified mutual fund now?
A mutual fund that invests more than 65 per cent of its total proceeds in debt and money market instruments, or a fund that invests 65 per cent or more of its total proceeds in units of such funds. The share is the annual average of the daily closing figures, and debt and money market instruments include anything SEBI classifies or regulates as such. This definition governs sales from 1 April 2025. Before that the test was 35 per cent or less in the equity shares of Indian companies.
Is section 50AA still the right section to cite?
For sales up to 31 March 2026, yes, under the Income-tax Act 1961. The Income-tax Act 2025 took effect on 1 April 2026 and carries the same rule as section 76, with the same definition of a specified mutual fund, and the Finance Act 2026 did not amend it. Holding periods are now in section 2(101), the 12.5 per cent rate in section 197 and the equity fund rates in sections 196 and 198.
Are gold ETFs and international funds still taxed at slab rates?
Not on sales from 1 April 2025, because they hold little or no debt. A listed gold or silver exchange traded fund turns long-term after 12 months and an unlisted gold, silver or overseas fund of funds after 24; the long-term gain is taxed at 12.5 per cent plus cess, a shorter holding at the slab rate. The old test of 35 per cent or less in Indian equity did catch them, which is why older pages say otherwise.
How are hybrid funds taxed?
By two tests on the fund's averages, not by its name. At least 65 per cent in shares of listed Indian companies makes it equity-oriented: 20 per cent within 12 months and 12.5 per cent on long-term gains above 1,25,000 rupees a year. More than 65 per cent in debt makes it a specified mutual fund, taxed at the slab whatever the holding. Neither means the slab for 24 months and 12.5 per cent after. Conservative hybrid funds usually land in the second group, balanced hybrid funds in the third, arbitrage and equity savings funds in the first.
Is a debt fund still better than a fixed deposit after tax?
Only through deferral, and only after years. With the same 7 per cent yield, a 0.30 per cent expense ratio and a 31.2 per cent marginal rate, the fund catches the deposit after about 5.6 years; at 20.8 per cent after about 8.4, and at 10.4 per cent after about 19.1. If the expense ratio exceeds the yield multiplied by the tax rate, it never does. Liquidity, credit and the ability to absorb capital losses are separate questions and can matter more.
Does holding a government bond directly beat a gilt fund on tax?
On interest, no: coupons are taxed at the slab each year, while the fund defers the same tax to redemption. On price gains, yes: a listed bond sold after more than 12 months pays 12.5 per cent plus cess on the gain, while a fund's gain is taxed at the slab. In the example on this page a two-year price gain of 62,806 rupees costs 8,165 rupees of tax held directly and 19,595 inside a fund at 31.2 per cent.
Does switching from a regular plan to a direct plan reset the tax clock?
Yes. A switch you choose, between plans or between schemes, is a redemption and a fresh purchase, so the gain on the old units is taxed and the new units carry the switch date. Units bought before April 2023 that are switched come back as units bought after it, inside section 76. The exemption in section 70(1)(zj) and (zk) of the 2025 Act covers only a consolidation of schemes or plans carried out by the fund house.
Can capital losses be set off against a debt fund gain?
A short-term capital loss can, whether it arose this year or is carried forward from up to eight earlier years, because the fund's gain is a short-term capital gain. A long-term capital loss cannot, since it absorbs only long-term gains. Interest from a deposit or a bond is income from other sources, and section 109 of the 2025 Act keeps every capital loss away from it.
As at 23 September 2026. Tax law, SEBI's category rules and the notified Cost Inflation Index all change: verify the current position before relying on anything here. The tax position described on this page must be confirmed with a chartered accountant for your own facts; the page is educational. Provisions were read in the Gazette of India texts of the Finance Act 2023 (section 24), the Finance (No. 2) Act 2024 (sections 3, 20, 21 and 30), the Income-tax Act 2025 and the Finance Act 2026, and in the memorandum to the Finance (No. 2) Bill 2024. They are cited by their numbers in the Income-tax Act 2025, in force from 1 April 2026, with the 1961 numbers they replaced: 76 (50AA), 2(101) (2(42A)), 72 (48), 196 (111A), 197 (112), 198 (112A), 108, 109 and 111 (70, 71 and 74), and 70(1)(zj) and (zk) (47(xviii) and (xix)). Sales made before 1 April 2026 are assessed under the 1961 Act.
How the illustrative figures were produced. Inputs: ₹10,00,000; a 7.00 per cent effective yield before tax on every route; a 0.30 per cent expense ratio, so fund growth of 6.70 per cent; Cost Inflation Index growth of 4.5 per cent a year; marginal rates of 10.4, 20.8 and 31.2 per cent and long-term rates of 20.8 and 13.0 per cent, all with the 4 per cent cess, surcharge and rebate ignored. Holdings are counted in months. The deposit and the bond compound at 7 per cent times one minus the marginal rate. The fund bought since April 2023 is taxed on the whole gain at redemption; the old rule taxes at the slab to 36 months and after that at 20.8 per cent of the value less the cost grown at 4.5 per cent a year, never below zero; pre-2023 units sold now pay the slab to 24 months and 13.0 per cent of the whole gain after. Current-rule break-evens are solved by bisection; the others are the first month after which the fund stays level or ahead to 40 years. The withdrawal example redeems ₹6,000 a month, first in, first out, from one purchase growing at 6.70 per cent a year; the bond example prices a 7 per cent coupon over 16 half-years at 3 per cent a half-year. No random numbers are used, so there are no seeds or replications: running tools/build-article-161.py reproduces every figure, and a separate script that does not import it re-derived them.
How the measured figures were produced. Closing values of the Nifty Composite G-sec Index come from the NSE daily index close files in the site's market data cache, where the series starts on 13 October 2015 and carries one name throughout; each session's date is its file name, not the file's date column. On the 55 sessions on which the 10-year benchmark's clean price index did not move, the composite rose a median 1.95 basis points, about a day's interest at 7 per cent, which is how it was identified as a total return series. The last session in the files for each month is a purchase and the last session 37 months later its sale; keeping sales before 23 July 2024 leaves 68 holdings bought from 30 October 2015 to 31 May 2021 and sold from 30 November 2018 to 28 June 2024. Each gross return is cut by 0.30 per cent a year for the exact days held, indexed with the Cost Inflation Index for its financial years of purchase and sale (254 for 2015-16, then 264, 272, 280, 289, 301, 317, 331, 348, and 363 for 2024-25) and taxed at 20.8 per cent of any positive indexed gain. Returns come from levels, not from the index's change column, which counts from the previous calendar day. None of the missing sessions in the data notes falls on a month's last session, and the 2024 interest defect in the 10-year benchmark index is absent from the composite index, checked session by session from April to June 2024. The index stands in for a bond portfolio; it is not a fund.
Not verified this session. SEBI's website could not be reached from this environment, so the February 2026 categorisation circular and its annexures were read in a republished copy of the circular's text, and the three-working-day redemption rule is taken from SEBI's investor document as reported, not read at source. The Cost Inflation Index values are CBDT Notifications 44/2024 (363) and 70/2025 (376) as reported, and secondary compilations that agree with one another for earlier years; the income tax department's site refused requests. No text reached this session states which year's average decides a fund's status for a given sale, whether a loss on a specified mutual fund unit is itself deemed short-term, how section 76's acquisition date applies to units received in a consolidation of schemes, including the mergers of solution-oriented schemes the February 2026 circular requires, or how the redemption of a bond bought below par is characterised. No individual scheme's classification was examined. Any amendment after the Finance Act 2026 must be checked.
Bharath Shiksha is an educational publisher and not a SEBI-registered investment adviser or research analyst. Nothing on this page is a recommendation to buy, hold or sell any fund, bond or deposit, the illustrative figures are not forecasts of any return, and the tax position must be confirmed with a chartered accountant before you act on it.
Ready to go deeper than this article?
Bharath Shiksha is a 90-volume curriculum across 6 stages, from chart reading at ₹14,999 through capital raising, or the full bundle at ₹1,49,999. Tax, cost and holding period are taught as one computation, worked from the statute and the inputs rather than from a fund's label.
Take the free diagnostic →