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Are you a tax payer? or Are Mutual Fund Taxable?
Then you need schemes or investment patterns to save your taxes, right?
In this article, you will find some categories in which if you invest your money then you can also save the taxes.
Mutual Fund termed as the known investment pattern by all the investors or the traders.
They choose to invest their money in the mutual fund.
Everybody wants to save some of their income in order to fulfil their goals.
Through this article, you will get each and every detail regarding “Are Mutual Fund Taxable?”
So, let’s jump into our article.
You can also read our blog on “How to Buy Mutual Fund Online?” to know the details for buying the mutual fund.
When you start investing in the mutual fund make sure that you have taken the proper knowledge for the same and you know the terms and conditions also.
Types of Holding Period
1. Long-Term Holding Period
If you invest in the equity mutual fund for more or equal to 12 months then it is term as the “long term”.
And when you invest in the debt mutual fund for more than 36 months then it is term as the “long term”.
2. Short-Term Holding Period
If you invest in the equity mutual fund for less or equal to 12 months then it is term as the “short term”.
Investment in the debt mutual fund for less than 36 months then it is term as the “short term”.
Further, through the table you will understand it with more clarifications:
| Funds Name | Short Term | Long Term |
| Debt Oriented Balanced Funds | Less than 36 months | More than 36 months |
| Debt Mutual Fund | Less than 36 months | More than 36 months |
| Equity Mutual Fund | Less than 12 months | More than 12 months |
| Equity Oriented Balanced Funds | Less than 12 months | More than 12 months |
Debt Oriented Balanced Funds comprises of more than or equal to 65% of debt constituent.
Equity Oriented Balanced Funds consist of more than or equal to 65% of equity exposure.
How Mutual Fund is taxed in Capital Gains?
Capital Gains means the difference between the investment selling price and the original purchase price of the investment securities.
There are differential tax rate for the different asset types of the mutual fund.
The tax rates are based on the type and holding period of the mutual fund.
The holding period of the different fund has been mentioned above.
There are two types of capital gains:
- Short –Term Capital Gains (STCG)
- Long-Term Capital Gains (LTCG)
For the equity funds, short-term capital gains on the unit redemption the taxation rate is 15%.
For the equity funds, long-term capital gains on the unit redemption the taxation rate is free up to 1 lakh Rs.
Whereas, if the amount exceeds Rs 1 Lakh then the LTCG will be at 10% rate and there will be no indexation benefit on this.
For the debt funds, short-term capital gains for the unit redemption are taxed according to the income tax slab as it is considered as the revenue.
For the debt funds, long-term capital gains for the unit redemption have the taxation rate of 20%.
Taxation Structure in Mutual Funds
I. Equity Funds
As mentioned above, the STCG for equity funds is taxed at a rate of 15%.
And the LTCG for the equity funds is taxed free up to Rs 1 Lakh and if it exceeds it will be charged at 10% with no indexation benefits.
But the Equity Linked Savings Scheme (ELSS) is different from this taxation rate.
As the ELSS comes with a Lock-in-period and are different from the regular equity funds.
As most of the equity mutual do have the facility of lock-in-period but the ELSS comes with 3 years of lock-in-period.
The amount for the ELSS can only be redeemed at the end of the 3 years.
II. Balanced Funds
The balanced funds are taxed as per the exposure of the debt or equity.
If it is debt-oriented balanced funds, then it will be taxed according to the debt funds exposure in both the LTCG and STCG.
If it is equity-oriented balanced funds, then it will be taxed as per the equity funds in both the capital gains in LTCG and STCG.
III. Debt Funds
About the debt funds also we had mentioned above the taxation rate for both the LTCG and STCG.
IV. Systematic Investment Plan (SIP)
Systematic Investment Plan (SIP) is another method for investing in the mutual fund.
This can be done weekly, monthly, quarterly, semi-annually or annually.
The taxation on the SIP is done on a pro-rata basis.
Each of the SIP is treated as the new investment that attracts the taxes or the gains.
V. Securities Transaction Tax (STT)
Securities Transaction Tax (STT) is another kind of tax that is levied by the government.
This tax is implied when you decide to sell the units of the equity funds or the equity oriented balanced funds.
There are no STT charges on the debt mutual funds.
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