Taxation of debt mutual funds was changed with effect from April 1, 2023. The indexation benefit in calculation of tax on long term capital gains was removed for debt mutual funds. Due to this, capital gains arising from the sale of debt mutual funds were made taxable at the income tax slab rate applicable to the recipient's income. Hence, from April 1, 2023, capital gains from debt mutual funds are no longer divided as short-term and long-term capital gains and same income tax rules apply to any capital gains on these funds. However, investments in debt mutual funds made on or before March 31, 2023, still remained taxable at 20% with indexation benefits for long-term capital gains (LTCG).

In the July 2024 budget, the government rationalised the capital gains taxation regime for all assets. From July 23, 2024, LTCG from selling an asset (listed or unlisted securities) are taxable at 12.5% without indexation benefit. However, capital gains on debt mutual funds will continue to be taxed at the income tax slab rate applicable to the recipient's income instead of the new LTCG tax rate of 12.5%.