Key Takeaway
Post-2023 changes, new debt fund investments no longer enjoy indexation benefit. However, investments made before March 2023 still benefit from Cost Inflation Index adjustment on LTCG after 3 years.
2,66,912
6,618
30,000
Tax Saved due to Indexation: ₹23,382
Indexation adjusts the purchase price of your investment for inflation using government Cost Inflation Index (CII) figures. This increases your cost of acquisition and reduces your taxable capital gains. Debt mutual funds purchased **before April 1, 2023**, benefit from this 20% tax rate with indexation when held for more than 36 months, saving substantial tax compared to standard slab rates.
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Frequently Asked Questions
What is indexation in debt mutual funds?
Indexation adjusts the purchase price of your investment for inflation using the Cost Inflation Index (CII) issued by the government, reducing your taxable gains.
Do debt funds still get indexation benefits?
Only grandfathered debt funds purchased before April 1, 2023, qualify for indexation benefits if held for more than 36 months. New debt fund purchases are taxed at slab rates.
How is indexed cost calculated?
Indexed Cost = Purchase Price * (CII of Sale Year / CII of Purchase Year). Tax is then charged at 20% on the difference between Sale Price and Indexed Cost.
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