Taxation & Exemptions
Debt Mutual Funds Taxation: Navigating the Removal of Indexation
Verified Indian financial mathematics, statutory regulations, and step-by-step actionable breakdowns.
myfinedu Research Desk 2026-02-20 7 min read
Executive Summary & Key Takeaways
- •Debt funds with <=35% equity bought after April 1, 2023, are taxed at your marginal income slab rate.
- •Arbitrage funds continue to enjoy 12.5% equity LTCG tax with zero stock market directional risk.
- •Target Maturity Funds and Bharat Bond ETFs grandfathered before April 2023 retain indexation.
The New Reality of Indian Debt Fund Taxation
The removal of 20% LTCG with indexation on pure debt mutual funds shifted the playing field. High-tax-bracket investors (30%+) now prefer Arbitrage Mutual Funds and Sovereign Gold Bonds for tax-efficient debt allocation.
Frequently Asked Questions
Yes! Liquid funds provide instant liquidity, zero lock-in, and safety without the penalty of premature FD breaking, making them perfect for emergency reserves.
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