New tax regime removes LTCG benefit for debt mutual funds, but arguments for tax change lack reason, says investment adviser

 

 The recent removal of the long-term capital gains (LTCG) tax benefit for debt mutual funds under the new tax regime has come under criticism from investment advisers, who argue that the decision lacks reason.

 

The recent removal of the long-term capital gains (LTCG) tax benefit for debt mutual funds under the new tax regime has come under criticism from investment advisers. The new tax regime, which was introduced in the 2020 Union Budget, removes the LTCG tax benefit for debt mutual funds, making them less attractive to investors.

 

The arguments for tax change lack reason

 

According to investment advisers, the arguments for the tax change lack reason. They argue that the removal of the LTCG tax benefit for debt mutual funds will have a negative impact on the debt mutual fund industry and on investors who rely on these funds for regular income.

 

One argument in favor of the tax change was that it would promote transparency and fairness in the tax system. However, investment advisers argue that this argument is flawed, as it ignores the fact that debt mutual funds are already subject to various taxes, including dividend distribution tax and securities transaction tax. They also argue that the new tax regime is not consistent, as it still allows for the LTCG tax benefit for equity mutual funds.

 

Impact on Investors and the Industry

 

The removal of the LTCG tax benefit for debt mutual funds is expected to have a significant impact on investors and the debt mutual fund industry. It is likely to make debt mutual funds less attractive to investors, as they will no longer be able to enjoy the tax benefit that they previously received.

 

This could lead to a decline in the assets under management (AUM) of debt mutual funds, which could have a negative impact on the industry as a whole. It could also lead to a reduction in the availability of credit in the economy, as debt mutual funds are an important source of funding for companies and other borrowers.

 

Conclusion

 

Overall, the removal of the LTCG tax benefit for debt mutual funds under the new tax regime has come under criticism from investment advisers, who argue that the decision lacks reason. They argue that the tax change is inconsistent, as it still allows for the LTCG tax benefit for equity mutual funds, and that it is likely to have a negative impact on investors and the debt mutual fund industry. While the new tax regime is intended to promote transparency and fairness in the tax system, investment advisers argue that the arguments for the tax change are flawed and that it is unlikely to achieve its intended objectives.