Mutual Funda: Mutual Fund Taxation
Equity Oriented Mutual Fund Taxation
|If Exit||Before 12 months||After 12 months|
|Applicable Tax||Short Term Capital Gains Tax (STCG)||Long Term Capital Gains Tax (LTCG)|
|Tax Rate||15% + surcharges + cesses as applicable||NIL|
Equity Oriented Mutual Fund exits within a year will have STCG tax implications or 15% + surcharges + cesses as applicable.
LTCG tax on Equity Mutual Funds are NIL. So exits after more than a year are tax free.
ELSS Schemes are equity oriented but they are an exception. They are designed as instruments for tax saving with a 3 year lock-in. So no taxes on ELSS scheme investments.
Taxation on Sale of Other than Equity Oriented Mutual Funds
|If Exit||Before 36 months||After 36 months|
|Applicable Tax||STCG Tax||LTCG Tax|
|Tax Rate||STCG are added to the individual’s taxable income.Tax is payable at the individual’s applicable tax slab||15% (20% with indexation) plus surcharges and cesses as applicable|
STCG tax will apply if Other Than Equity Oriented Mutual Funds are exited within 36 months. In this case, the STCG should be added to the individual’s taxable income. Tax payable is computed using the tax slab applicable to the individual.
LTCG tax on Other Than Equity Oriented Mutual Funds are 15% (20% with indexation) plus surcharges and cesses as applicable
Taxation on Dividend Income
Any dividend received from Mutual Funds is tax free in the hands of the individuals.
However, Mutual Funds have to deduct taxes(TDS) from the dividend payable. There’s no tax on dividend payable for Equity Oriented Schemes. For Other than Equity Oriented Schemes, tax is deducted at 25% + applicable surcharges and cesses.
Tax is deductible by the Mutual Fund scheme for Non-Resident Investors
For Non Resident Investors, Mutual Funds have to deduct Capital Gains tax at the time of redemption of units. In effect, the investor will receive proceeds from a sale net of applicable Capital Gains Taxes.
Refer to the Tax Reckoner for Mutual Funds for this financial year from HDFC Mutual Fund for more details.
This note is applicable to individuals. It does not cover all details of mutual fund taxation and should be used as a general reference. Do consult a tax expert to understand the exact tax nuances.
We hope this increases your understanding of Mutual Fund Taxation. If you have more questions, do write to us on [email protected].
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