Taxation with regards to Mutual Funds is segregated as Short-Term Capital Gains Tax and Long-Term Capital Gains Tax. Capital Gain refers to the difference between selling price and purchase price of Mutual Fund units. The treatment for Capital Gains Tax differs for Equity based and Debt based schemes.
Short Term Capital Gains Tax.
At present Short-Term Capital Gains Tax for Equity based schemes is chargeable when units are sold within one year of purchase of such units. The Short-Term Capital Gains Tax is applicable at 15% of the profits realized (Capital appreciation). There is no TDS for short term capital gains for resident Indian investors.
For debt-based schemes the Short-Term capital gains Tax is applicable when units are sold within 3 years of purchase of such units. The profit realized from such sale (Capital appreciation) is clubbed with the regular income of the investor and taxed at the applicable tax rate as per his tax slab.
Long Term Capital Gains Tax.
Long term capital gains tax for Equity based schemes is applicable when units are sold after 1 year from the date of purchase of such units. Since Budget 2018, Long term Capital Gains tax for Equity based schemes has been initiated at 10.4% including cess. Capital Gains up to Rupees One lakh in a year are exempt from Long Term Capital Gains Tax.
Long Term Capital Gains tax on debt-based schemes is applicable on sale of units, 3 years after the date of purchase of units. Profit realized is taxed at 20% after indexation. Indexation refers to the inflation adjusted purchase price of the units.
Capital Loss
Capital loss cannot be written off against any other source of Income. Short term Capital loss can be written off against short term or long term capital gains realized from other investments. Long term capital loss cannot be written off against short term capital gains. It can be written off only against long term Capital gains realized from other investments.
Dividend Distribution Tax.
Dividend Distribution Tax has been abolished by the Government since Financial Year 2020. Dividend received is now taxable in the hands of the Investor as per his Tax Slab.
