Question: I invested in a debt mutual fund scheme in India and plan to hold it for about 4 years before redeeming. Will my gains be treated as long-term capital gains with an indexation benefit, given I'm holding it beyond 3 years?
Answer: No. For debt-oriented mutual fund schemes (no more than 35% equity allocation) acquired on or after 1 April 2023, gains are taxed entirely as short-term capital gains at your applicable slab rate, regardless of holding period. The earlier long-term/indexation treatment for holdings beyond 3 years no longer applies.

Supporting evidence:
title: incometaxindia.gov.in/section-50aa
quote: where the capital asset is a unit of a Specified Mutual Fund acquired on or after the 1st day of April, 2023 or a Market Linked Debenture, the full value of consideration received or accruing as a result of the transfer or redemption or maturity of such debenture or unit as reduced by—
(i) the cost of acquisition of the debenture or unit; and
(ii) the expenditure incurred wholly and exclusively in connection with such transfer or redemption or maturity,
shall be deemed to be the capital gains arising from the transfer of a short-term capital asset: Specified Mutual Fund" means a Mutual Fund by whatever name called, where not more than thirty five per cent of its total proceeds is invested in the equity shares of domestic companies:
context: ovision for computation of capital gains in case of Market Linked Debenture
Special provision for computation of capital gains in case of Market Linked Debenture
Following section 50AA shall be inserted after section 50A by the Finance Act, 2023, w.e.f. 1-4-2024:
Special provision for computation of capital gains in case of Market Linked Debenture.
50AA.
Notwithstanding anything contained in clause (
42A
) of
section 2
or
section 48
, where the capital asset is a unit of a Specified Mutual Fund acquired on or after the 1st day of April, 2023 or a Market Linked Debenture, the full value of consideration received or accruing as a result of the transfer or redemption or maturity of such debenture or unit as reduced by—
(i) the cost of acquisition of the debenture or unit; and
(ii) the expenditure incurred wholly and exclusively in connection with such transfer or redemption or maturity,
shall be deemed to be the capital gains arising from the transfer of a short-term capital asset:
Provided
that no deduction shall be allowed in computing the income chargeable under the head "Capital gains" in respect of any sum paid on account of securities transaction tax under the provisions of Chapter VII of the Finance (No. 2) Act, 2004 (23 of 2004).
Explanation
.— For the purposes of this section—
(i) "Market Linked Debenture" means a security by whatever name called, which has an underlying principal component in the form of a debt security and where the returns are linked to market returns on other underlying securities or indices and include any security classified or regulated as a market linked debenture by the Securities and Exchange Board of India;
(ii) "Specified Mutual Fund" means a Mutual Fund by whatever name called, where not more than thirty five per cent of its total proceeds is invested in the equity shares of domestic companies:
Provided
that the percentage of equity shareholding held in respect of the Specified Mutual Fund shall be computed with reference to the annual average of the daily closing figures.
Footnotes
Video Player
Follow Us On:
Last reviewed and updated on:
Public Awareness
NUDGE
Report Phishing
RTI
Children's Corner
Quick Links
Feedback
Sitemap
Contact Us
Grievance & Support
Analytics
Important Resources
Locate Income-tax Offices
Useful Links
Subscribe - Newsletter
Subscribe - Tax Feeds
e-Governance
This is the official website of Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance, Government of India.