Taxation of Investing in Mutual Funds

Taxation of Investing in Mutual Funds

For taxation purpose, funds can be categorised into 2 types:

  1. Equity Fund
  2. Non-Equity Fund

For Resident Indians

Income from Equity Fund

Any mutual fund which invests 65% or more of its portfolio in equities or equity-oriented instruments is called equity fund. These funds include diversified equity funds, large/mid/small cap equity funds, equity oriented hybrid funds, ELSS, RGESS, sector funds etc.

  • If an equity fund investor redeems his funds after 12 months from the date of investment, the income from his investment is considered as Long Term Capital Gain (LTCG). The tax on Long Term Capital Gain (LTCG) from an equity fund is zero.
  • If an equity fund investor redeems his funds before 12 months from the date of investment, the income from his investment is considered as Short Term Capital Gain (STCG). The tax on Short Term Capital Gain (STCG) from an equity fund is 15%.
  • Dividend income from equity fund is tax-free.
  • Tax Deduction at Source(TDS)- Nil

Income from Non-Equity Fund

Any mutual fund which invests less than 65% of its portfolio in equity or equity-oriented instruments is called non-equity fund. These funds include debt funds, liquid funds, gold funds, debt oriented hybrid funds, money market funds etc.

  • If a debt fund investor redeems his funds after 3 years from the date of investment, the income from his investment is considered as Long Term Capital Gain (LTCG). The tax on Long Term Capital Gain (LTCG) from a debt fund is 20% with indexation benefit. Here indexation means that the original cost of investment goes up after factoring in inflation. Due to indexation, tax amount on Long Term Capital Gain (LTCG) becomes negligible.
  • If an debt fund investor redeems his funds before 3 years from the date of investment, the income from his investment is considered as Short Term Capital Gain (STCG). The tax on Short Term Capital Gain (STCG) from an debt fund is taxed according to investor’s tax slab.
  • Dividend declared by a debt mutual fund is tax-free in the hands of investors; however, mutual fund needs to pay dividend distribution tax (DDT) from the distributable income at the rate of 28.33 % (including surcharge and cess) directly before releasing dividend to the investors.
  • Tax Deduction at Source(TDS)- Nil

For Non-Resident Indians (NRIs)

Income from Equity Fund

Any mutual fund which invests 65% or more of its portfolio in equities or equity-oriented instruments is called equity fund. These funds include diversified equity funds, large/mid/small cap equity funds, equity oriented hybrid funds, ELSS, RGESS, sector funds etc.

  • If an equity fund investor redeems his funds after 12 months from the date of investment, the income from his investment is considered as Long Term Capital Gain (LTCG). The tax on Long Term Capital Gain (LTCG) from an equity fund is zero.
  • If an equity fund investor redeems his funds before 12 months from the date of investment, the income from his investment is considered as Short Term Capital Gain (STCG). The tax on Short Term Capital Gain (STCG) from an equity fund is 15%.
  • Dividend income from equity fund is tax-free.
  • Tax Deduction at Source(TDS)- 15% for equity fund, if withdrawn before 12 months from the date of investment and NIL, if withdrawn after 12 months from the date of investment.

Income from Non-Equity Fund

Any mutual fund which invests less than 65% of its portfolio in equity or equity-oriented instruments is called non-equity fund. These funds include debt funds, liquid funds, gold funds, debt oriented hybrid funds, money market funds etc.

  • If a debt fund investor redeems his funds after 3 years from the date of investment, the income from his investment is considered as Long Term Capital Gain (LTCG). The tax on Long Term Capital Gain (LTCG) from a debt fund is 20% with indexation benefit. Here indexation means that the original cost of investment goes up after factoring in inflation. Due to indexation, tax amount on Long Term Capital Gain (LTCG) becomes negligible.
  • If an debt fund investor redeems his funds before 3 years from the date of investment, the income from his investment is considered as Short Term Capital Gain (STCG). The tax on Short Term Capital Gain (STCG) from an debt fund is taxed according to investor’s tax slab.
  • Dividend declared by a debt mutual fund is tax-free in the hands of investors; however, mutual fund needs to pay dividend distribution tax (DDT) from the distributable income at the rate of 28.33 % (including surcharge and cess) directly before releasing dividend to the investors.
  • Tax Deduction at Source(TDS)- 30% for non-equity fund, if withdrawn before 3 years from the date of investment and 20% (with indexation), if withdrawn after 3 years from the date of investment.

Upcoming Bank Holidays

2018 December 18 is a bank holiday in Meghalaya due to Death Anniversary Of U SoSo Tham.
2018 December 19 is a bank holiday in Goa due to Goa Liberation Day.
2018 December 24 is a bank holiday in Meghalaya due to Christmas Festival.
2018 December 25 is a bank holiday in Andaman And Nicobar Island due to Christmas.
2019 January 01 is a bank holiday in Manipur due to New Year's Day.
2019 January 01 is a bank holiday in Nagaland due to New Year Day.

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