Decoding Taxes on Your ETF Investments

Are you thinking about exchange-traded funds (ETFs)? Taxes are an essential part of the picture to understand how much you might keep. This article breaks down the tax treatment of income and gains from ETFs.

Equity ETFs (Mostly Stocks)

Tax treatment for these ETFs is similar to individual stocks:

• Long-Term Capital Gains (LTCG):?Sold after 1 year? Any profit is considered LTCG. If your LTCG on equity ETFs is over ?1,00,000, you pay a 12% tax.
• Short-Term Capital Gains (STCG):?Sold within 1 year? Any profit is STCG and taxed at 20%.

Other ETFs (Less Than 35% Stocks)

For ETFs with less than 35% investment in Indian stocks, taxes depend on when you bought them:

Bought After April 1, 2023:

New tax rules apply! These ETFs no longer get a benefit called indexation for LTCG calculations. This means these ETFs are taxed at your regular income tax rates.

Bought Before April 1, 2023:

• Long-Term Capital Gains (LTCG):?Owned for more than 3 years? Any profit is considered LTCG. You get taxed at 20% with an indexation benefit that can reduce your tax.
• Short-Term Capital Gains (STCG):?Owned for less than 3 years? Any profit is STCG and taxed at your regular income tax rates.

Ready to dive into ETFs, we suggest some of the Best Gold ETFs that you should consider for higher returns.

Understanding how taxes work with ETFs can help you make intelligent choices and lower your tax bill—thinking about a personalized strategy? Consider talking to a licensed investment professional like Lakshmishree.

Also read: Best ETFs in India to invest in 2024