Given the article by ET: Debt mutual funds: No LTCG tax benefit from April 1, 2023; what it means for investors.
I would like to understand whether there is any difference in terms of taxation on international equity-based: (a) ETF, (b) Its MF, and (c) Its FOF MF? For e.g.: Whether the ETF “MON100,” the MF “ICICI Prudential NASDAQ 100 Index Fund Direct-Growth” and the FOF MF viz. “Motilal Oswal Nasdaq 100 Fund of Fund” will have different tax implications if someone has invested from April 1, 2023, onwards. If yes then which one will come under which MF/ETF category and what would be the tax rate for each of the three (given investments made from April 1, 2023, onwards)?
As per the amendment stated by you, if any ETFs, MFs and FOF MFs are acquired after April 1, 2023, which have less than 35% of total assets invested in domestic companies in India will be considered as Debt Funds and it will be taxed at slab rates without any indexation benefit.
You need to check the funds if they have less than 35% of total assets invested in domestic companies.
Hope this helps!
Thanks, @CA_Niyati_Mistry! Just one clarification: -
- If at the time of purchase (after April 1, 2023) someone is at a 5% tax slab rate but while selling say after 2 years if he is in a 30% tax slab rate then he needs to pay ~30% tax on profits?
- Also, he may have some liberty i.e. if while buying (after April 1, 2023) he is at a 30% tax slab rate but while selling after 1-3 years he is under say 5% tax slab, then needs to pay taxes at ~5% on profits?
- However, if profits are higher say 20L, and even if no other income then ultimately he will come under the 30% tax slab rate and need to pay taxes accordingly, am I right?
Yes, all the three situations stated by you are correct. The tax on profits will be levied at the tax slab rate in which you fall at the time you sell the ETFs, MFs. So as per your stated case in first case the profits will be taxed at 30%, in second at 5% and in third it will be taxed at 30%.
Thank you, @CA_Niyati_Mistry for the explanation!