Units of a Specified Mutual Fund acquired on 1.6.2023 and sold after being held for 30 months produce:
ALong-term capital gains taxed at 12.5 per cent
BLong-term capital gains taxed at 20 per cent with indexation
CShort-term capital gains taxed at normal slab rates
DExempt income, as mutual fund units are not capital assets
Answer & Solution
Correct answer: C. Short-term capital gains taxed at normal slab rates
1. Section 50AA deems gains on units of a Specified Mutual Fund acquired on or after 1.4.2023 (funds with more than 65% of proceeds in debt and money-market instruments), Market Linked Debentures, and unlisted bonds/debentures to be short-term capital gains.
2. The deeming applies irrespective of the actual holding period, overriding section 2(42A) — so 30 months of holding does not create a long-term asset.
3. Such deemed STCG is taxed at normal slab rates.
4. Options A and B fail because no long-term treatment (and hence no 12.5%/indexation route) is possible; option D is wrong because the units are capital assets — only the gain classification is forced to short-term.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 55_
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