Mutual Funds: Tax Treatment in Income Tax
A Mutual Fund is an investment fund that pools money from many investors or shareholders to invest in securities. A Fund Manager who is professional manages this pool of money. It is a foundation that pools funds from various investors with similar investing goals and invests in the same equities, money market instruments, bonds or other securities.
Mutual Fund provides access to professionally managed and diversified portfolios to individual investors.
There are various types of Mutual funds to invest in, and taxation also needs to be understood. Profit gained from mutual fund investments are known as Capital gains, and they are subject to tax. The taxation of every type of mutual fund is different. Let’s understand the taxation of mutual funds through this article.
Equity-Oriented Mutual Fund
Equity-Oriented Mutual Funds are those mutual funds where an investment amount of 65% or more is invested in Equity. Taxation of Equity-oriented mutual funds is divided into 2 categories.
If the Period of Holding is > 12 months, then profits earned from this are called Long Term Capital Gain (LTCG)
- Zero Tax upto Capital Gain of Rs.1 Lakh
- (10% + Cess + Surcharge (As Per Income)) on Capital Gain of more than Rs. 1 Lakh
If Sold within 12 months then profits earned from this is considered as Short Term Capital Gain (STCG)
- The tax rate would be 15%.
- No Indexation Benefits.
Other Mutual Fund
First are those where the equity investment by Mutual Fund is less than 65% but more than 35%.
If the Period of Holding is> 36 months, then profits earned from this is known as Long Term Capital Gain (LTCG)
- 20% Tax with Indexation.
If Sold within 36 months, then profits earned from this is termed as Short Term Capital Gain (STCG)
- Tax at Slab rates
- No Indexation Benefit.
Specified Mutual Fund/Market Linked Debenture
These are those mutual funds where equity is upto 35%. Specified Mutual Fund / Market Linked Debenture is always treated as Short Term Capital Gain (STCG).
- Tax as per Slab Rates.
- No Indexation Benefits.
