When you receive interest income and capital gains from your mutual fund investments, it will be taxed at different rates depending on where it comes from. Here's all you should know about mutual funds taxes.
When you invest in a mutual fund, you are bound to receive incomes from:
Here's how it is taxed:
1. Dividends: Dividends received by investors are added to their taxable income and investors will be taxed at their respective income tax slab rates.
2. Capital gains: The tax rate of capital gains of mutual funds depends on the holding period and type of mutual fund. The holding period is the duration for which the mutual fund units were held by an investor.
Type of funds:
1. Debt and equity funds : Debt funds are those mutual funds whose portfolio’s debt exposure is in excess of 65% whereas in equity mutual funds, a portfolio’s equity exposure exceeds 65%. Hybrid funds are those funds which invest both in debt and equity. The below table shows when
|Fund Type||Short-term capital gains||Long-term capital gains|
|Equity funds||Less than 12 months||12 months and longer|
|Debt funds||Less than 36 months||36 months and longer|
|Hybrid equity-oriented funds||Less than 12 months||12 months and longer|
|Hybrid debt-oriented funds||Less than 36 months||36 months and longer|
When you earn short-term capital gains on redeeming your equity fund units within a holding period of 12 months, you pay tax of flat 15%. When you make a long-term capital gain on selling your equity fund units after a holding period of 12 months, here is how tax is computed:. Capital gains of up to Rs 1 lakh a year is tax-exempt. Any long-term capital gains above this 1 lakh limit will attract LTCG tax at the rate of 10%.
|Fund type||Short-term capital gains|
|Equity funds||15% + cess + surcharge|
|Debt funds||Taxed at the investor’s income tax slab rate|
|Hybrid equity-oriented funds||15% + cess + surcharge|
|Hybrid debt-oriented funds||Taxed at the investor’s income tax slab rate|