Mutual fund investment and taxation


#1

Do both equity and debt Mf’s go tax free if invested for more than1 year?


#2

For equity mutual funds investments with a holding period of more than one year you are liable
for a nil long term capital gains tax. If the fund you have invested comes under a debt fund category, you pay a short term capital gains tax as per your tax slab if holding period is less than 3 years. Both these are applicable only if you are an Indian resident and not a NRI.


#3

Hi Dhyan,

The taxation rules were changed in Union Budget 2018. For equity Mutual Funds, the returns that you earn after one year of investment will be taxed at 10% if they are more than Rs. 1 lakh. These are treated as long-term capital gains (LTCG). The profit booked before the completion of one year is treated as a short-term capital gain (STCG) and is taxed at 15%.

If a debt Mutual Fund SIP is held for more than three years, the returns are treated as a long-term capital gain. Profit earned in less than three years is treated as a short-term capital gain. While the LTCG for debt funds is taxed at 20% with indexation benefit, the STCG is taxed as per the respective Income Tax slab rate of the investor.

The tax structure of a hybrid fund depends on whether it is equity-oriented (with more than 65% investment in equities) or debt-oriented (less than 65% invested in debt). Read the terms and conditions carefully to find out whether it qualifies as an equity or a debt scheme.

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Cheers,
BB Expert