Mutual funds earnings called as capital gains are taxable in the hands of investors. The tax to be paid on the capital gains depends on the category of the mutual fund scheme and the time period for which the investment was held.
For an instance gains made on an investment in equity mutual fund sold before completion of 12 months from the date of purchase is termed as short-term capital gains. Gains on any investment held over 12 months is long term capital gains.
Similarly, in case of debt funds or any other category apart from the equity schemes, earnings on an investment sold before completion of 36 months is termed as short-term capital gains and gains by selling an investment after completion of 36 months is termed as long-term capital gains.
Here’ are the current rules of taxation of the equity and debt mutual funds:
A scheme that predominantly invests over 65% of its portfolio in equity shares in domestic companies is called an equity-oriented mutual fund scheme.
-Long term capital gains on units held for more than 12 months are taxed at 10%, without indexation benefit. Long term capital gains upto ₹1 lakh are not taxed.
-Short term capital gains on units held for 12 months or less are taxed at a flat rate of 15%.
How much income tax you have to pay on gains in debt mutual fund schemes
Debt mutual funds and schemes that hold lesser than 65% of their total portfolio in equities are taxed as per the rules given below:
-Long term capital gains on units held for more than 36 months or three years are taxed at 20% after providing for indexation.
-Short term capital gains on units held for 36 months or less are added to the income of the individual and taxed as per the applicable slab rate.
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