Categories: Mutual Funds

Invest on or before 31st March 2020 to get 4 indexation benefit#

4 Indexation benefit:

  1. Long term capital gains (holding period of over 3 years) from debt mutual fund schemes are taxed at 20% plus applicable surcharge and cess with the benefit of indexation.
  2. Government notifies Cost Inflation Index (CII) for each financial year taking into consideration the prevailing inflation levels
  3. The cost of purchase for computation for tax is adjusted for inflation using CII, thereby reducing the capital gains from tax perspective.
  4. An investment made in debt mutual fund toward the end of financial year (say, in March 2020) and held it for a little over 3 years (say, in April 2023) would be eligible for application of CII over 5 financial years and resulting in 4 indexation benefit.

(#Investors can avail the 4-indexation benefit, if they invest in the above schemes on or before March 31,2020 and redeem during FY 2023-24)

Illustration demonstrating the benefit of investing in debt mutual fund at the of the year:

Investment at the March end Investments post March
Investment Amount ₹ 10,00,000 ₹ 10,00,000
Investment Date 30-Mar-16 01-Apr-16
Redemption Date 01-Apr-19 01-Apr-19
Indexation Benefit Applicable Yes Yes
Expected Value assuming 7% growth rate ₹ 12,25,043 ₹ 12,25,043
Gains ₹ 2,25,043 ₹ 2,25,043
Tax Post indexation ₹ 17,449 ₹ 26,029
Final Value Post Tax and Indexation ₹ 12,07,594 ₹ 11,99,014

Note: The above table is just for illustration purpose only. Investors should be aware that the fiscal rules/tax laws may change and there can be no guarantee the current tax positions may continue indefinitely.

You may consider opting for debt mutual fund schemes at the end of the year.

Happy Investing.

[tek_button button_text=”Download Fisdom App” button_link=”url:https%3A%2F%2Fbit.ly%2F3g15Qxt||target:%20_blank|” button_position=”button-center”]

Join our Fin Insight Community

Tejesh Kumar

Recent Posts

Diwali Picks 2024

This Diwali, we present a portfolio that reflect both sector-specific and stock-specific opportunities. With 2…

2 months ago

Expert Recommended Stocks

Thank you for showing interest in taking a BTST position using our Delivery Plus product.…

6 months ago

Congratulations! Your FREE session with our expert is confirmed.

Thank you for showing interest in the consultation on trading strategies! Our expert will reach…

8 months ago

How to sell shares of unlisted companies?

Even if you are a new participant in the stock market, the process of buying…

1 year ago

Interest Coverage Ratio – Meaning, Types, Interpretation & Importance

A company’s debt position can be gauged using the interest coverage ratio or ICR. This…

1 year ago

Muhurat trading timings 2023-24: Indian stock exchanges

Muhurat Trading, a cherished tradition in the Indian stock market, takes place on Diwali, the…

1 year ago