Maximizing tax efficiency with mutual funds: Understanding distribution types and taxation methods
Taxation of Mutual Fund Gains
<div data-placement=«Mid Article Thumbnails» data-target_type=«mix» data-mode=«thumbnails-mid» style=«min-height:400px; margin-bottom:12px;» class=«wdt-taboola» id=«taboola-mid-article-thumbnails-108558941»>The taxation of mutual fund gains in India is primarily based on two factors: the type of mutual fund and the holding period.
Equity Mutual Funds:
Short-Term Capital Gains (STCG, held for less than 12 months): Taxed at 15%. Short-term capital gains tax is calculated on the profit made by selling the units within a period of fewer than 12 months from the date of purchase. This tax rate remains consistent across all income brackets.
Long-Term Capital Gains (LTCG, held for over 12 months): Taxed at 10% without indexation or foreign currency conversion benefits, for gains exceeding Rs. 1 lakh. Long-term capital gains tax is applied when the units are held for more than 12 months. The tax rate is 10% on gains exceeding Rs. 1 lakh, without the benefit of indexation.
Debt Mutual Funds:
STCG: Taxed based on the investor’s applicable income tax slab rates. Short-term capital gains tax for debt mutual funds is charged as per the investor's income tax slab rates. It is important to note that short-term capital gains for debt funds are applicable if the units are held for less than 36 months.
LTCG: As per the Union Budget 2023, there is no indexation benefit for debt funds effective from April 1, 2023. Hence, all gains from debt funds will be taxed per the investor’s slab rate. Long-term capital gains tax for debt mutual funds is applicable if the units are held for more than 36 months. As of the Union Budget 2023, the benefit of indexation has been removed for debt funds, and gains are
