How Are Mutual Funds Taxed? G Bajpai & Associates- Chartered Accountants Lucknow


What are Mutual Funds

  • A Mutual Fund is a pool of money managed by a professional fund manager.
  • It is a trust that collects money from a number of investors and invests the same in equities, bonds, and other securities. The income generated from this collective investment is distributed proportionately among the investors after the deduction of applicable expenses.

Types of Mutual Funds

  • Equity Funds- Equity funds are those mutual funds whose portfolio’s equity exposure exceeds 65%. 
  • Debt Funds- Debt funds are those mutual funds whose portfolio’s debt exposure is in excess of 65%.
  • Hybrid Funds- Hybrid mutual funds are types of mutual funds that invest in more than one asset class. Most often, they are a combination of Equity and Debt assets, and sometimes they also include Gold or even Real estate.

Earnings from Mutual Funds

  • Returns are in two forms: Dividends and Capital Gains.
  • Dividends received by investors are added to their taxable income and taxed at their respective income tax slab rates.

Taxation of Capital Gains

Fund Type

STCG

LTCG

Equity Funds

< 12 months

>= 12 months

Debt Funds

< 36 months

>= 36 months

Hybrid equity-oriented funds

< 12 months

>= 12 months

Hybrid debt-oriented funds

< 36 months

>= 36 months


  • Taxation of Equity Funds

    • Short Term Gains are taxed at a flat rate of 15% (u/s 111A) 
    • Long Term Gains up to Rs. 1 lakh are exempt
    • LTCG above Rs. 1 lakh are taxed at 10% (u/s 112A)
    • No indexation benefit is provided

  • Taxation of Debt Funds

    • Short-term gains are added to your taxable income and taxed at your income tax slab rate.
    • Long Term Gains are taxed at a flat rate of 20%
    • The benefit of Indexation is provided.

  • Taxation of Hybrid Funds

    1. If the equity exposure exceeds 65%, then the fund scheme is taxed like an equity fund, if not then the rules of taxation of debt funds apply.

Taxation of Capital Gains when invested through SIPs

  • Systematic investment plans (SIPs) are a method of investing in mutual funds. They are designed in such a way that investors can invest a small amount periodically in a mutual fund scheme.
  • The redemption of these units is processed on a first-in-first-out basis.

There is no STT on the sale of Debt fund units

Contact us: +919415912987


  
Location: 11th Floor, Wing A, Summit Building, Vibhuti Khand, Gomti Nagar, Lucknow, Uttar Pradesh 226010, India

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