Bharat Bond Exchange Traded Fund: Capital gains tax regime for debt mutual funds may be tweaked

Bharat Bond Exchange Traded Fund: The government is exploring potential adjustments to the capital gains tax framework for debt mutual funds, aiming to provide relief for the Bharat Bond Exchange Traded Fund. The finance ministry discussed this matter in a recent meeting, as plans are underway to release a new tranche of the Bharat ETF within the current fiscal year, according to an ET report.
The official was quoted as saying that the issue is currently under review, with a final decision to be made when the government finalizes the budget. “Bharat ETF from April 1, 2023, is taxed at the slab rate like any other debt mutual funds and this could be a dampener for the investors,” the official said.
The finance bill 2023 introduced changes to the tax structure for debt mutual funds, shifting from a holding period-based taxation to a slab rate system for funds with less than 35% equity investments.
The official added that there is a perspective advocating for a specific exemption to be granted to the Bharat Bond ETF.
“DIPAM (Department of Investment and Public Asset Management) will send a formal recommendation in this regard to the department of revenue for consideration after the government formation,” the official added.
Additionally, finance ministry officials are set to engage with executives from Public Sector Undertakings (PSUs) to evaluate their funding needs for the current fiscal year.
Since its inception in 2018, the Bharat Bond Exchange Traded Fund (ETF) has facilitated the issuance of bonds by various government-related entities and three private companies, raising a total of Rs 33,400 crore in debt since 2019.
In December 2023, the government commenced the process of appointing a consultant to provide guidance on managing the Bharat Bond ETF and issuing a new tranche. However, the modifications in the taxation regime have surfaced as a significant concern that needs to be addressed.