Earnings from debt funds can come either in the form of dividends or capital gains or even both. While dividends are tax free after you have received them, capital gains are taxed post being realised. Here is how you add the capital gains to your tax return filing.

Debt funds are useful in creating that part of your investment portfolio where you are looking for stable returns with low risk. Typically, this is filled with bank deposits, however, if used wisely debt funds can not only deliver better returns but also more tax efficient returns.