ITR 2026: How debt funds, equity gains, and FDs are taxed

Confused about how debt fund, equity gains, and interest income are taxed in FY 26? Today's Ask Wallet Wise give a breakdown of how different income streams are taxed and what your total liability could look like.

The Ask Wallet-Wise initiative offers expert advice on personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com and we will try to get a top financial expert to address them.

I am confused about the tax on debt funds for the financial year April 2025 to March 2026. My taxable salary is Rs 20 lakhs. I have redeemed equity mutual funds and have Rs 1.2 lakh of long-term capital gains. I have FD interest of Rs 4 lakh per year. I have sold shares with short-term capital gains of about Rs 30,000. I had invested Rs 4.7 lakh in ABSL Corporate Bond Fund in Feb 2019 and redeemed it in Feb 2026 for Rs 7.9 lakh. I am confused about the calculation. Can you explain how the tax will be calculated on different incomes?

Expert's Advice: For the purpose of taxation, debt funds are divided into two categories. Investments made in debt schemes prior to April 1, 2023 fall in the first category, which becomes long term after two years and is taxed at a flat rate of 12.50%.

All investments made in debt funds on or after April 1, 2023 are included in the second category. The capital gains earned in the second category of debt funds are always taxed as short-term capital gains, irrespective of the holding period. Short-term capital gains of both categories of debt funds are included in your normal income and taxed at your slab rate.

Since the investment in ABSL Corporate Bond Fund was made prior to 1st April 2023 and was redeemed after two years, the profits of Rs 3.20 lakh will be treated as long-term capital gains and taxed at a flat rate of 12.50%. The tax on Rs 3.20 lakh @ 12.50% comes to Rs 40,000.

Since your long-term capital gains on equity are below Rs 1.25 lakh for the year, there is no tax liability on Rs 1.20 lakh, as such gains are taxed at a zero rate. The short-term capital gains of Rs 30,000 will be taxed at a flat rate of 20%, and the tax liability comes to Rs 600.

From your salary of Rs 20 lakh, you are entitled to a standard deduction of Rs 75,000 under the old tax regime, leaving Rs 19.25 lakh as taxable salary. Adding Rs 4 lakh of interest takes your total normal income to Rs 23.25 lakh, which is taxed at slab rates. The tax liability on your normal income comes to Rs 78,750. The total tax liability comes to Rs 1,24,750, computed as under:

This tax shall be increased by a cess of 4%, i.e., Rs 4,990. The total tax liability comes to Rs 1,29,740.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to consult certified experts before making any investment decisions.