Union Budget 2025: Will the Government Simplify Capital Gains Tax Rules for Mutual Funds?

Mutual Funds, Stock Market News

Union Budget 2025: Will the government really lighten up on the basics of capital gains tax on mutual funds?

Open-end funds or mutual funds have for long been a common investment avenue for those who looking for regular returns while practicing systematic savings plan. Different investment gurus always recommend long-term investments through mutual funds and equities to accrue enormous wealth in the long-run. In the 2023 Union Budget which was presented on July 23, the government brought massive changes to equity mutual funds under the capital gains tax. As the Union Budget 2025 is slated on February 1, investors want to know if the government is making these rules even more attractive?

Key Changes in Capital Gains Tax Rules in July 2023

In the second half of the financial year 2023, the Finance Minister of India Nirmala Sitharaman proposed major changes to the capital gains tax for equity mutual funds.

Short-Term Capital Gains (STCG) Tax:
Earlier, the sale of equity mutual fund units in less than one year was charged a 15% short-term capital gains tax. The Finance Minister raised this rate to 20% so as to enhance the development of long-term funding.
Long-Term Capital Gains (LTCG) Tax:
These units attract capital gains tax whereby units held for over 12 months attract long-term capital gains tax. The Finance Minister increased this tax rate from 10% to 12.5% as per the government’s plan of long term investment.

Promoting Long Term Investments

It was realized by economic pundits that the amendment of taxes in the month of July of 2023 shows government premier to fund long-term equity investments. Noble explicitly sets the goal: the short-term gains tax rate will be 20% while increasing the long-term gains tax rate to 12.5% wouldn’t be a big jump but rather a signal – the right planning is everything.

A number of experts believe that having 10% as the LTCG tax rate can continue to encourage investors to remain locked in for long periods on the equity mutual funds. This would make equity schemes more attractive and increase the subscription in Mutual Fund investments.

Interest in Equity Mutual Funds on the Rise

In recent years, the market for mutual funds, especially equity products, has grown rapidly. Currently, the total AUM of mutual fund industry is at a magnificent ₹68 lakh crore that presents the rising faith of millions of investors.

Among the factors favouring this trend, one can single out the Systematic Investment Plans (SIP), allowing to invest rather small amounts on regular basis. SIPs help develop a fi scal discipline making it possible to accumulate sizeable lump sums over the long run.

Notably, the population today accepts equity mutual funds more than it used to accept savings products like fixed deposits. This change reveals the increasing realization of the probability of attaining better returns from related and sustained investments in equity programmes.

What to Expect in the Union Budget 2025

In the run up to the Union Budget 2025, everyone is inches away from changes concerning the capital gains tax regime. Elimination of taxes or reducing taxes levied over a long-term gathered amount can enhance the representations from investors tremendously.

Will the government satisfy the demand of the industry and reduce tax burden to make industries friendlier? LTCG tax at the current rate of 15% is having a dampening effect on the flow to equity mutual funds, so truncating the tax to 10% is a possible trigger.

Do not miss out the special coverage and analysis of Union Budget 2025 and its implications on your investments.

Conclusion

The need for the government to stimulate long-term investments is well illustrated by the following tax changes introduced in 2023. However, there is likelihood that further simplifying the capital gains tax rules can act as the key driver to make these mutual funds more attractive. While investors sit tight for the Union Budget 2025, perhaps one of the significant events that will open up fresh growth prospects for India’s mutual fund market is a cut in LTCG tax rates.

Union Budget 2025: Will the government really lighten up on the basics of capital gains tax on mutual funds?
Key Changes in Capital Gains Tax Rules in July 2023
Promoting Long Term Investments
Interest in Equity Mutual Funds on the Rise
What to Expect in the Union Budget 2025
Conclusion