Understanding Capital Gains Tax on Mutual Funds
Mutual funds are a popular investment option that can help grow wealth with minimal risks. The profit made from the mutual fund is considered capital gains. The capital gain earned on a mutual fund is the difference between purchase price of the mutual fund units and their selling price. The capital gain on mutual funds is broadly categorised as Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG).
Short-Term Capital Gains
These are profits earned from selling equity funds held for less than 12 months and debt funds for less than 36 months. These gains are taxable.
Long-Term Capital Gains
The capital gains from investments that are held for more than one year are described as Long-Term Capital Gains. These gains are usually taxed at a lower tax rate than the short-term gains.
Short-Term Capital Gains Tax on Mutual Funds
The STCG arising on the transfer of equity-oriented mutual fund units is taxed at 15% plus surcharge and cess as applicable. The STCG from assets including debt funds or debt-oriented funds are taxed at the rates corresponding to the income tax slab of the taxpayer.
Long-Term Capital Gain Tax on Mutual Funds
While there are different types of mutual funds, each type is taxed separately.
- Equity Funds: 10% on gains above ₹1 lakh with no indexation.
- Equity-Oriented Hybrid Funds: 10% on gains above ₹1 lakh with no indexation.
- Debt Funds and Debt-Oriented Funds: 20% tax rate and indexation benefit available.
- Unlisted Equity Funds : 20% tax rate and indexation benefit available.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.