Mutual Funds Taxation

Mutual Funds are recommended investment tool to earn huge corpus in the long-run. Like every capital asset involves tax, Mutual Funds too attracts capital gains tax.

Capital Gain Meaning– The appreciation you derived in between the purchase price and selling price is capital gain of that asset.

Meaning of Debt Funds– Debt funds are one of the safest investment tools with a limited risk. Debt funds invests in bonds, government securities, debentures, commercial papers etc.

The reason why debt funds too are little-bit risky are the securities which the fund house invests are subject to insolvency/credit-risk. so debt funds too carries a little risk.

Capital Gains Tax on Debt Funds-

  • Short Term Capital Gains Tax– If the debt funds are hold for a period of 36 months(3 Years) and if you sell the funds within 36 months of purchase, you would be levied to pay short-term capital gains tax.

The capital appreciation you derived from the sale will be added to the income of the investor and taxed according to his/her tax slab

  • Long-Term Capital Gain Tax-If the debt funds are hold for more than 36 months of purchase and sold after that period, you would be levied Long Term Capital Gain Tax

The Tax applicable would be 20% with Indexation Benefit(adjusted to inflation)or 10% without indexation; whichever is applicable

Capital Gain Tax on Sale of Equity Funds– Funds which invests 65-75% in Indian shares are classified as Equity Funds. As Equity Funds are risky in the short-term, it would be prudent to know the taxation of equity funds, as investors tend to sell whenever the market slips.

  • Short-Term Capital Gain Tax– If you sell your funds within 1 Year from the date of the purchase, the investor has to pay short term capital gains of 15% on the gains realised within that 1 Year
  • Long-Term Capital Gain Tax- If you hold your mutual fund units for more than 1 year and if you realised capital gain of 1 Lakh rupees in a particular financial year, you would be levied to pay 10% tax.

However, the capital gains arised on or before 2018, January 31st are grandfathered(Not Taxed)as per section 112A of the income tax act.

These are the taxation rules applicable to mutual funds. Be informed on the taxation rules and plan your investments accordingly!

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