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"The proposed changes in debt fund taxation, also applicable to gold funds, international funds and domestic fund  of funds will have far reaching consequences. When STCGs are imposed on debt funds, the taxation will be similar to taxation of bank FDs. This is a blow to debt market.

The important consequences will be as follows:
1. More money will move to bank FDs.
2. Equity mutual funds and hybrid funds with above 35% investment in equity will attract more investment.
3. Sovereign Gold Bonds will attract more funds.
4. Since investment up to 31st March 2023 will be grand fathered, investors can invest in debt funds and international funds in the next few days up to 31st March.
5. The biggest gainer will be the exchequer with increasing tax revenue.

Even though the proposed changes are a blow to the debt market, these changes simplify the tax system by taxing all fixed income products like. This proposed reform mainly targets HNIs and family offices who gained from the tax arbitrage under the existing tax regime.

The proposed changes are in line with the philosophy of the new default personal income tax regime without exemptions. India’s tax policy is moving to a simple, consistent tax regime with no room for tax exemptions and arbitrage."