DEBT MUTUAL FUNDS & BUDGET 2025: A NEW WAY TO PAY LESS TAX
If you have invested in debt mutual funds, Budget 2025 has made some important changes that can help you save tax. But the tax benefits depend on when you bought your investment. Let’s break it down in simple terms so you can understand how this affects you.
Why Does the Purchase Date Matter?
Debt mutual funds are now taxed differently based on whether you bought them before or after April 2023.
- If you bought after April 2023, your gains will be taxed as per your income tax slab, but you can now claim a rebate of ₹60,000.
- If you bought before April 2023, your gains will be taxed at 12.5% after two years of holding. You don’t get the rebate, but Budget 2025 has increased the basic exemption limit, which reduces your tax liability.
Scenario 1: Debt Mutual Funds Bought After April 2023
If you sell these investments after April 2025, you can use the Section 87A rebate to reduce your tax.
Example:
- You made ₹12 lakh in capital gains from debt mutual funds.
- You have no other income.
Tax Calculation Before Budget 2025 (Selling Before April 2025)
| Income Slab | Tax Amount |
| Up to ₹3,00,000 | No Tax |
| ₹3,00,001 - ₹7,00,000 | ₹20,000 |
| ₹7,00,001 - ₹10,00,000 | ₹30,000 |
| ₹10,00,001 - ₹12,00,000 | ₹30,000 |
| Total Tax Payable | ₹80,000 |
| Education Cess (4%) | ₹3,200 |
| Final Tax Payable | ₹83,200 |
Tax Calculation After Budget 2025 (Selling After April 2025)
| Income Slab | Tax Amount |
| Up to ₹4,00,000 | No Tax |
| ₹4,00,001 - ₹8,00,000 | ₹20,000 |
| ₹8,00,001 - ₹12,00,000 | ₹40,000 |
| Total Tax Payable | ₹60,000 |
| Rebate Under Section 87A | ₹60,000 |
| Final Tax Payable | ₹0 |
Result: You save ₹83,200 by selling after April 2025.
Scenario 2: Debt Mutual Funds Bought Before April 2023
For funds bought before April 2023, long-term capital gains (LTCG) tax applies after holding them for 2+ years. These gains are taxed at 12.5%. The rebate does not apply, but Budget 2025 has increased the tax-free limit from ₹3 lakh to ₹4 lakh, which helps reduce your taxable amount.
Example:
- You made ₹12 lakh in capital gains from debt mutual funds.
- You have no other income.
Tax Calculation Before Budget 2025 (Selling Before April 2025)
| Income Slab | Tax Amount |
| LTCG Tax (12.5% on ₹9,00,000) | ₹1,12,500 |
| Education Cess (4%) | ₹4,500 |
| Final Tax Payable | ₹1,17,000 |
Tax Calculation After Budget 2025 (Selling After April 2025)
| Income Slab | Tax Amount |
| LTCG Tax (12.5% on ₹8,00,000) | ₹1,00,000 |
| Education Cess (4%) | ₹4,000 |
| Final Tax Payable | ₹1,04,000 |
Result: You save ₹13,000 by selling after April 2025.
What Should You Do?
Check when you bought your debt mutual funds.
- If after April 2023, wait till after April 2025 to pay zero tax.
- If before April 2023, you still save money by waiting but won’t get a rebate.
- If possible, delay selling your debt MFs until after April 2025 to reduce your tax liability.
- Consult a tax professional to understand your best options based on your full financial situation.
Final Thoughts
Budget 2025 has made debt mutual funds more tax-friendly, especially for those who invested after April 2023. By taking advantage of the rebates and increased exemption limits, investors can save a lot on taxes.
If you are planning to sell your investments, timing matters—selling after April 2025 could mean a big difference in your tax bill. Make sure you make the right decision to keep more money in your pocket!
(The author Chakrivardhan Kuppala is Cofounder & Executive Director, Prime Wealth Finserv. Views are own)