Are there any tax implications?

Modified on Fri, 13 Oct 2023 at 05:13 PM

Investing in mutual funds can have several tax implications that investors should be aware of. The tax treatment of mutual funds varies depending on factors such as the type of mutual fund, the holding period, and the investor's income level. 


Here are the key tax implications associated with mutual funds in India. Please note that the information is provided for general information only. However, in view of the individual nature of the implications, each investor is advised to consult his or her own tax advisors/authorised dealers with respect to the specific amount of tax and other implications arising out of his or her participation in the schemes


For a domestic Individual investor, these tax brackets apply:


Scheme type

Short-term capital gains

Long-term capital gains

Equity Oriented Scheme

15%

10%1

Other than Equity Oriented Scheme 

As per Slab Rate

20% with indexation (excluding specified Mutual Fund)4


  1. Income-tax at the rate of 10% without indexation benefit to be levied on long-term capital gains exceeding Rs. 1 lakh provided transfer of such units is subject to Securities Transaction Tax ('STT').

  2. In addition to the above rate, there would be additional applicable surcharge, if any and Health & Education Cess at the rate of 4% on income-tax and surcharge.

  3. Equity Oriented Scheme invests at least 65% of the scheme's assets in equities and equity related instruments.

  4. Specified Mutual Fund means a mutual fund where not more than 35% of its total proceeds is invested in the equity shares of domestic companies. In such case, capital gain would be considered as short-term capital gain and taxed as per applicable tax rates of the investor irrespective of the holding period. 


For other type of investors, tax related details can be found on this link



For Equity Funds (ELSS)

For Investment period >= 3 years

ELSS funds offer an exemption of tax under Section 80C of the Income Tax Act. After exempting Rs 1.5 lakh, Gains/Profits are taxed at 10% (plus surcharge, if any and 4% cess) without indexation

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