18 Aug 2014

Mutual Funds Part 5/7 - Taxation on Mutual Funds

After doing a few articles on mutual funds (Part 1Part 2Part 3, Part 4) the series would be incomplete if I did not discuss taxation on funds.

Taxation on Equity Funds

  • Short Term Capital Gains (STCG) tax is applicable for redemption within a year. This is levied @ 15%
  • Long Term Capital Gains Tax (LTCG) - for funds held more than a year, there is no LTCG tax.
  • Dividend is tax free in the hands of the fund holder/individual.
  • Equity funds includes all funds investing mainly in equity and arbitrage funds.
Taxation on Debt Funds
  • STCG is applicable for funds held for less than 3 years. This is levied as per the tax bracket you fall under. E.g. if you fall under the 20% tax bracket, you pay taxes STCG tax @ 20%.
  • LTCG - for funds held for more than 3 years, LTCG is levied @ 20% with indexation. This is the latest as per budget 2014
  • Dividend is tax free
  • This includes all debt funds, liquid funds, gold funds, FMPs (Fixed Maturity Plans) and balanced funds which are debt heavy.
It is good to be able to plan taxes along with your investments. It gives a clear idea of net returns and what should be declared at the time of filing tax returns.

1 comment:

  1. Good article. Mutual fund dividend being tax free in the hands of the investor, it is good option for investment of your retirement funds, at least partially. This will keep your taxable income at a lower level,