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Planning to invest in mutual funds(MF)? Excellent choice! But, without taking tax into consideration? Since taxation will affect your cash flow, knowing the ins-and-outs of it becomes imperative. This guide will teach you all you need to know about the taxation angle of MFs.<\/p>\n\n\n\n
Amendments made to the Union Budget 2020 have made any MF scheme taxable in a classical manner. Meaning, the dividends investors receive are added to their taxable income and then taxed as per their respective income tax slab rates.<\/p>\n\n\n\n
However, the taxation of MFs depends upon the fund type and the holding period. The short-term and long-term capital gains are taxed at different rates.<\/p>\n\n\n\n
Short-term capital gains on equity funds within a 1-year holding period are taxed at a flat rate of 15%, regardless of your income tax slab. Long-term capital gains (LTCG) up to Rs. 1 lakh are non-taxable. Anything exceeding this amount attracts an LTCG tax at the rate of 10% (without indexation).<\/p>\n\n\n\n
Additional Read: <\/strong>5 Tips to grow your wealth while saving taxes<\/a><\/p>\n\n\n\n Short-term capital gains on debt funds within a three-year holding period are taxed in a classical manner. Furthermore, a flat rate of 20% after indexation is taxable on long-term capital gains. Plus, applicable cess and surcharges are also levied on the tax.<\/p>\n\n\n\n Taxation of hybrid funds capital gains depends upon the equity exposure of the portfolio. If over 65% of the funds\u2019 assets are invested in equity funds, then the taxation rules of equity funds apply.<\/p>\n\n\n\n Similarly, if the hybrid fund is a debt-oriented fund, the taxation rules of a debt fund apply.<\/p>\n\n\n\n For investment through SIPs<\/a>, you need not pay any tax on long-term capital gains less than Rs. 1 lakh. However, short-term capital gains are taxable at a flat rate of 15%, irrespective of your income tax bracket. Cess and surcharges will also apply.<\/p>\n\n\n\n The first step to calculating MF taxation is finding out the capital gains. Here\u2019s how to calculate capital gains on mutual funds<\/a> –<\/strong><\/p>\n\n\n\n Buying price of the fund \u2013 selling price of the fund = capital gains<\/p>\n\n\n\n To calculate long-term capital gains, use the following formula \u2013<\/p>\n\n\n\n Full value of accrued or received consideration \u2013 (indexed cost of acquisition + indexed cost of improvement + cost of transfer)<\/p>\n\n\n\n If you are a salaried individual, you need to file ITR-2 and if your income source is your business, you need to file ITR-3. You will be required to disclose details such as date of sale and purchase, sales consideration, purchase amount, among others.<\/p>\n\n\n\n Additional Read:<\/strong> ELSS: Wealth Creation Analysis<\/a><\/p>\n\n\n\n Finally, mutual fund units become more tax-efficient the longer you hold onto them. However, do you have a different investment horizon in mind? Based on your investment goals, risk profile, and more requirements, you can compare MF schemes<\/a> from the comfort of your home using Tata Capital\u2019s Moneyfy app<\/a>. Start investing today!<\/p>\n\n\n\nTaxation of debt funds capital gains<\/strong><\/h2>\n\n\n\n
Taxation of hybrid funds capital gains<\/strong><\/h2>\n\n\n\n
Taxation of capital gains received from SIP investment<\/strong><\/h2>\n\n\n\n
How to calculate long-term capital gains on mutual funds<\/strong><\/h2>\n\n\n\n
How to show mutual fund in Income Tax Return<\/strong><\/h2>\n\n\n\n
Over to you<\/strong><\/h3>\n\n\n\n