Mutual Fund Taxation Rules in India:
- Dividends:
- As of Union Budget 2020, dividends are added to the taxable income of the investor and taxed at the slab rate.
- Previously, dividends were tax-free since companies paid dividend distribution tax (DDT).
- Equity Funds Taxation:
- Short-term capital gains (STCG) (held for less than 12 months) taxed at 15%.
- Long-term capital gains (LTCG) (held for 12 months and longer): Exempt up to Rs. 1 lakh, beyond which taxed at 10% without indexation.
- Debt Funds Taxation:
- Starting April 1, 2023, gains from debt funds will be treated as STCG without indexation.
- Previously, LTCG from debt funds was taxed at 20% with indexation.
- Hybrid Funds Taxation:
- Depends on equity exposure; >65% equity treated like equity funds, else like debt funds.
- SIPs:
- Units are redeemed on a first-in-first-out basis.
- Units held for over a year are considered LTCG; those held for less are STCG.
- Securities Transaction Tax (STT):
- 0.001% levied on buying or selling units of an equity or hybrid equity-oriented fund.
- No STT on the sale of debt fund units.
Table on Taxation of Capital Gains on Mutual Funds:
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