Mutual Fund Taxation

This week we will look into the taxation aspect of the Mutual Funds. The funds can we divided into equity oriented and non-equity oriented mutual funds. Equity oriented is a fund investing 65% or more of the fund value into domestic equities of companies.

Non-Equity Oriented funds are Debt funds, as a category, include liquid, ultra-short-term, short-term, income accrual, dynamic bond, and gilt funds. It also includes all debt-oriented funds as MIPs and other hybrid non-equity funds. International funds and gold funds also follow the same taxation as debt funds.

Holding period decides the nature of capital gain. Then the nature of capital gain and type of mutual fund decides the taxability of the gains. In the below table we have summarized the taxability structure of the various funds and categorization of capital gains.

Equity Oriented Funds                  Non-Equity Oriented Funds

Long Term Capital Gain (LTCG)

Holding Period                                  More Than 12 months                   More than 36 months

Taxability                                             Not taxable                                        Taxable @ 20% with indexation benefits

Short Term Capital Gain (STCG)

Holding Period                                  Less than 12 months                       Less than 36 Months

Taxability                                             15% of the ST Capital Gain            taxable at slab rate

(Securities transaction tax (at 0.001%) will apply on all redemptions of equity schemes in case of STCG)

Investing in Equities Oriented funds is also advisable from the point of view of taxability as well for Long per period more than 12 months, entire long term capital gains in not taxable.

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