Income Tax Bill, 2025 | New Mutual Funds tax deduction explainedTax benefits will only be applicable to ELSS funds under Section 80C (upto Rs 1,50,000 per year).
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The new Income Tax Bill, 2025 has been tabled in the Lok Sabha today. Finance Minister Nirmala Sitharaman proposed an overhaul of the Indian personal tax laws while presenting the Union Budget 2025, which will also include changes to capital gains tax on earnings through mutual funds. Here is how this will work:
Key Changes in Mutual Fund taxation under Income Tax Bill, 2025: A comparison
| Aspect | Old Law (Income Tax Act, 1961) | New Law (Income Tax Bill, 2025) | Impact |
|---|---|---|---|
| Debt Mutual Funds (Specified Mutual Funds) | LTCG at 20% with indexation if held for 3+ years | All gains taxed as STCG (slab rates), no indexation | Higher tax for long-term investors |
| Market-Linked Debentures (MLDs) | LTCG at 10% without indexation (if held >1 year) | Always taxed as STCG at slab rates | No LTCG benefit anymore |
| Mutual Fund Mergers | No tax at time of merger | Still tax-free at merger, but better defined | Clarification, no extra tax |
| Short-Term Capital Gains (STCG) | 15% for equity MFs, slab rates for debt | No change for equity, but debt MFs now always STCG | Debt MF investors pay more tax |
| Securities Transaction Tax (STT) Deduction | STT was deductible as an expense | STT deduction removed | Higher costs for active traders |
Process of deduction for mutual fund investors as per Income Tax Bill, 2025
| Aspect | Old Law (Income Tax Act, 1961) | New Law (Income Tax Bill, 2025) | Key Change |
|---|---|---|---|
| ELSS Deduction | Available under Section 80C (₹1.5 lakh limit) | No change | Remains the same |
| Other Mutual Fund Deductions | No deduction for non-ELSS funds | No deduction for non-ELSS funds | No change |
| Dividend Taxation | Taxed at slab rates | No change | No change |
| Capital Gains Tax Treatment | LTCG at 10% (equity), 20% with indexation (debt) | Debt LTCG removed, now taxed at slab rates | Higher tax for debt fund investors |
Final Summary: Who Gains and Who Loses?
| Investor Type | Impact |
|---|---|
| Equity Mutual Fund Investors | Higher LTCG (12.5%) & STCG (20%) tax rates |
| Debt Mutual Fund Investors | No indexation, taxed at slab rates (higher tax) |
| Market-Linked Debenture (MLD) Investors | No LTCG benefit, all gains taxed at slab rates |
| Hybrid Fund Investors (Debt-heavy) | Now taxed at slab rates (higher tax) |
| Gold & International Fund Investors | Higher tax, indexation benefit removed |
| ELSS (Tax-Saving MF) Investors | No change, still deductible under 80C |