To understand Mutual Fund taxation, classify Mutual Fund investments into two categories. Equity oriented Mutual Fund investments and Other Than Equity Oriented Mutual Funds.
Equity Oriented Mutual Fund Taxation
|If Exit||Before 12 months||After 12 months|
|Applicable Tax||Short Term Capital Gains Tax (STCG)||Long Term Capital Gains Tax (LTCG)|
|Tax Rate||15% + surcharges + cesses as applicable||10% on LTCG above Rs 1,00,000 in a Financial Year|
Equity Oriented Mutual Fund exits within a year will have STCG tax implications or 15% + surcharges + cesses as applicable.
LTCG tax on Equity Mutual Funds are 10% on LTCG above Rs 1,00,000 in one Financial Year. From April 1, 2018 onwards, Finance Act, 2018 introduced Section 112A to provide that long term capital gains arising from transfer a unit of an equity oriented fund shall be taxed at 10% without indexation and without foreign currency fluctuation benefit of such capital gains exceeding one lakh rupees
ELSS Schemes are equity oriented but they are an exception. They are designed as instruments for tax saving with a 3 year lock-in.
Taxation on Sale of Other than Equity Oriented Mutual Funds
|If Exit||Before 36 months||After 36 months|
|Applicable Tax||STCG Tax||LTCG Tax|
|Tax Rate||STCG are added to the individual’s taxable income.Tax is payable at the individual’s applicable tax slab||15% (20% with indexation) plus surcharges and cesses as applicable|
STCG tax will apply if Other Than Equity Oriented Mutual Funds are exited within 36 months. In this case, the STCG should be added to the individual’s taxable income. Tax payable is computed using the tax slab applicable to the individual.
LTCG tax on Other Than Equity Oriented Mutual Funds are 15% (20% with indexation) plus surcharges and cesses as applicable.
Taxation on Dividend Income
Dividends are taxable in the hands of the investor from starting 01-Apr-20, as per the FY20-21 budget. Also, Mutual Funds shall no longer pay Dividend Distribution Tax on dividends received by them.
Earlier, any dividend received from Mutual Funds was tax free in the hands of the individual while Mutual Funds had to deduct taxes(DDT) from the dividend received by them. There was no tax on dividends for Equity Oriented Schemes. For other than Equity Oriented Schemes, tax was deducted at 25% + applicable surcharges and cesses.
Tax is deductible by the Mutual Fund scheme for Non-Resident Investors
For Non Resident Investors, Mutual Funds have to deduct Capital Gains tax at the time of redemption of units. In effect, the investor will receive proceeds from a sale net of applicable Capital Gains Taxes.
Refer to the Tax Reckoner for Mutual Funds for this financial year from HDFC Mutual Fund for more details. The updated document for FY 2018-19 can be accessed here.
This note is applicable to individuals. It does not cover all details of mutual fund taxation and should be used as a general reference. Do consult a tax expert to understand the exact tax nuances.
We hope this increases your understanding of Mutual Fund Taxation. If you have more questions, do write to us on [email protected].
You can experience world class investing on India’s friendliest Direct Plan Investment Platform. Just visit kuvera.in and let us work our magic!
June 17, 2017 AT 08:53
How to identify Equity oriented Mutual Fund investments and Other Than Equity Oriented Mutual Funds.
July 17, 2017 AT 08:03
You can identify Equity Oriented Funds and Other than Equity Oriented Funds by looking at the fund’s prospectus documents. In case you have already invested in a fund, you can look for this in your statement.
August 26, 2017 AT 07:21
very useful article on tax part of various Mutual Funds
March 4, 2018 AT 05:55
Can you pls update the article, in view of the 10% LTCG on equity MFs in Budget 2018
April 17, 2018 AT 08:48
Will do so soon Ankit. Thanks.
March 18, 2018 AT 10:23
Should this document be updated , now that we have LTCG on all the MFs?
August 22, 2018 AT 11:36
I have a Question here..
While Redeeming Mutual Fund Amount,Does Kuvera deduct this STCG(15% + surcharges + cesses) and then credit remaining amount to the source Bank account or do we need to pay STCG(15% + surcharges + cesses) at the end of year to income tax while filing returns?
If Kuvera itself deducts(TDS) where can we check detailed report of charges?
August 22, 2018 AT 14:01
We do not deduct anything. You have to file your taxes yourself.
January 18, 2020 AT 05:39
Does Mutual funds company deducts STCG?
January 19, 2020 AT 06:20
February 17, 2020 AT 06:03
This has originally been a query from me to Kuvera, but posting it here for awareness of wider audience & more attention as I feel it is important for all Kuvera investors
Kuvera is selling savesmart as a new hassle-free account type investment with debit card in future. So we need to know what exactly the tax implications are and how they can be calculated.
For investors, SaveSamrt is more of a blanket investment.
We investors will not even be knowing the breakdown of the investment into specific liquid funds Investors will not be knowing how much money is invested into which liquid fund and at time of withdrawal which fund is being redeemed. Then it will be impossible for an investor to calculate the SCTG & LTCG values for each underlying fund.
Considering these, Kuvera needs to get back clearly on – What are the tax implications when we withdraw funds from SaveSmart account? Does it fall under savings account type tax implication OR under debt MF since underlying are liquid funds?
February 17, 2020 AT 06:08
I also understand from a reply I received that Kuvera is evaluating the prospect of building a TradeSmart like prompt for redemption in SaveSmart investments to display potential gains at the time of placing redemption orders in SaveSmart.
For now, we can only hope that the final product will be able to give us the exact tax value based on which underlying liquid fund was actually redeemed on the investor’s behalf.
March 3, 2020 AT 02:39
You can always click on “SaveSmart details” in the SaveSmart tab to see which liquid funds your portfolio is holding at that time. Further out capital gain report will take into account all the SaveSmart transaction at the fund level to calculate tax implications. https://kuvera.in/reports/capital-gains
Hope this helps.
June 26, 2020 AT 13:33
If mf gains are negative or less than 1lakh and units are more than a year old , will the ltcg tax be applicable?
June 29, 2020 AT 03:24
If there are no gains, you will have long term capital loss which can offset other long term capital gains for the same year.
October 13, 2020 AT 18:24
Does Kuvera provide a summary of all investments made and exited in a financial year?
October 17, 2020 AT 06:51
Yes we do Amit. In the reports section.
December 2, 2020 AT 06:58
Are there any charges involved when we switch regular funds to a direct fund? If yes then how and where are they deducted ?
December 7, 2020 AT 06:58
You can read all the details here https://kuvera.in/blog/3-ways-to-switch-your-regular-plans-to-direct-mutual-fund-plans/
Ashish Dutt Sharma
February 26, 2021 AT 11:50
Would it be possible for you to generate section 112A, perhaps as part of Taxsmart?
Will add value for me to have a consolidated account inside Kuvera.