FMPs with tenure less than 36 months, redeemed after April 1, 2014, will no longer be eligible for indexation benefits, or lower long-term capital gains tax.
There are three things proposed in the budget that are negative for investors in debt funds.
a. Investors have to hold a debt fund for 36 months, to get any benefit of long-term capital gain (LTCG). Currently this number is 12 months. (Effective date 1 April 2014)
b. The choice of paying taxes at 10% without indexation on LTCG is no longer available. LTCG from non-equity oriented funds would be taxed at 20% tax after indexation. (Effective date 1 April 2014)
c. Dividends distributed by mutual funds are subject to dividend distribution tax (DDT). This will now be paid on the gross basis and not on net amount of dividend paid. (Effective date 1 Oct 2014)
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