A taxpayer asked how short‑term capital gains (STCG) from debt mutual funds are taxed under the new tax regime for Assessment Year 2026‑27. The answer clarifies that the tax treatment depends on the date of investment, the fund’s debt exposure, and the holding period.
If an investment in a debt fund is made after 31 March 2023 and the fund’s debt component is more than 65 percent of the total corpus, the profits are treated as short‑term capital gains regardless of how long the asset is held. This means the gains are taxed at the individual’s applicable slab rate.
For investments made before 1 April 2023, the tax rules differ. If the fund is redeemed after 24 months, the gains are taxed at a flat rate of 12.50 percent. If the redemption occurs within 24 months, the gains are taxed at the normal slab rate.
Thus, short‑term capital gains from debt funds are generally taxed at the slab rate, whether the investment was made before or after the 2023 cutoff, unless the long‑term holding rule applies.
Under both the old and the new tax regimes, the taxpayer can claim the Section 87A rebate on these short‑term gains provided the usual conditions for the rebate are met.
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The information above provides a clear guide for investors planning to sell debt mutual fund units in AY 2026‑27 and helps them understand the applicable tax rates and rebate eligibility.