Mutual funds are frequently seen as an appealing investment alternative because they assist you in achieving your financial goals. The fact that mutual funds are tax-efficient investing vehicles is a huge perk. The profits from these assets are taxed similarly to those from other asset classes as they are a form of passive income. You should therefore be aware of your tax obligations before investing in mutual funds.
Here are some key points regarding mutual fund taxation in India:
- Mutual funds are required to pay a Dividend Distribution Tax (DDT) on dividends declared and distributed to unitholders.
- Capital Gains Tax: The taxation of capital gains on mutual funds depends on the holding period of the units. The following tax rates apply:
- Short-Term Capital Gains (STCG): If the mutual fund units are held for less than 36 months (3 years), the gains are treated as short-term capital gains and are taxable at the individual's applicable income tax slab rates.
- Long-Term Capital Gains (LTCG): If the mutual fund units are held for 36 months or more, the gains are treated as long-term capital gains.
As per the current tax laws, long-term capital gains exceeding INR 1 lakh are subject to a flat tax rate of 10% without indexation benefits.
Securities Transaction Tax (STT): When buying or selling mutual fund units on the stock exchange, STTis levied depending on the stock exchange or the fund house.
Tax Deduction at Source (TDS): In certain cases, such as capital gains on redemption or repurchase of mutual fund units, the mutual fund may deduct tax at source (TDS) before making the payment to the investor.
Tax-Saving Mutual Funds (ELSS): Equity-Linked SavingsSchemes (ELSS) are a specific category of mutual funds that offer tax benefits under Section 80C of the Income Tax Act. Investments made in ELSS funds are eligible for a deduction up to INR 1.5 lakh from taxable income in the year of investment.
Better consult with a tax professional or financial advisor for the most up-to-date and accurate information regarding mutual fund taxation in India based on your specific circumstances.
Look up more articles here for a smooth first time tax-filing process. All the best!
