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Mutual Funds - Income Tax Rules for Mutual Fund Investment: How Gains are Taxed

27 Jul 2020

Inflation and taxes are the two monsters that take away a part of returns on your mutual fund investments. You must plan your investments considering both the factors to avoid falling short of money for your goals. Here we will discuss the taxation part of mutual funds. Also keep in mind, tax rules keep on changing. You might need to revisit your mutual fund portfolio regularly to make changes to your investments to factor in any change in taxation rules. Here’s how the equity and debt mutual funds are taxed as per current rules : Taxation of equity-oriented mutual fund schemes A scheme that predominantly invests over 65% of the portfolio in equity shares in domestic companies is called an equity-oriented mutual fund scheme. > Long term capital gains on units held for more than 12 months are taxed at 10%, without indexation benefit. Long term capital gains upto ₹1 lakh are not taxed. > Short term capital gains on units held for 12 months or less are taxed at a flat rate of 15%. Taxation of debt mutual fund schemes Debt mutual funds and schemes that hold lesser than 65% of their total portfolio in equities also follow these taxation rules: > Long term capital gains on debt mutual fund units held for more than 36 months or three years are taxed at 20% after providing for indexation. Indexation is a process by which the purchase price of an asset is adjusted in a way to factor in inflation over the years. Indexation brings up the purchase price, reducing the overall gains on the investment for the purpose of taxation, which in turn results in lower taxes. Indexation reduces the tax outgo. > Short term capital gains on units held for 36 months or less are added to the income of the individual and taxed as per the applicable slab rate.
Source: Live Mint BACK

To be added soon

Priyanshu B. Tanna

SEBI registered IFA

ARN119467 & EUIN E-183966

To be added soon

Bharat Tanna

SEBI registered IFA

ARN26176 & EUIN E-044509

To be added soon

Kundan B. Tanna

SEBI registered IFA

ARN294073 & EUIN E-553599

Risk factor

Risk Factors – Investments in Mutual Funds are subject to Market Risks. Read all scheme related documents carefully before investing. Mutual Fund Schemes do not assure or guarantee any returns. Past performances of any Mutual Fund Scheme may or may not be sustained in future. There is no guarantee that the investment objective of any suggested scheme shall be achieved. All existing and prospective investors are advised to check and evaluate the Exit loads and other cost structure (TER) applicable at the time of making the investment before finalizing on any investment decision for Mutual Funds schemes. We deal in Regular Plans only for Mutual Fund Schemes and earn a Trailing Commission on client investments. Disclosure For Commission earnings is made to clients at the time of investments. Option of Direct Plan for every Mutual Fund Scheme is available to investors offering advantage of lower expense ratio. We are not entitled to earn any commission on Direct plans. Hence we do not deal in Direct Plans.

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