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Tax Calculations for Different Funds

We tell Mohit Verma how long- & short-term tax is computed for different types of mutual funds

Could you tell the tax slabs on returns of debt, equity and other funds for less than and more than one year? - Mohit Verma

When an investor sells a capital asset and makes a profit, it is termed as a capital gain and when he makes a loss, it is termed as capital loss. Depending on the period of holding of the capital asset, it is broken up into Long-term Capital Gains and Short-term Capital Gains. The tax levied on this profit is called capital gains tax.

In case of mutual funds, long-term capital gain tax is applicable if you sell your units after 12 months of holding. But, if you sell them within a year of buying, then short-term capital gain tax is applicable. This rule holds true for debt as well as equity mutual funds.

For equity funds, the tax treatment is the same for individual as well as corporate investors. Long-term capital gains of equity funds are exempt from tax. Short-term capital gains are taxed at 16.99 per cent. This includes the capital gains tax rate as well as the surcharge and cess (15%+10%+3%). A Securities Transaction Tax (STT) of 0.25 per cent is levied by the mutual fund on redemption or switch from an equity fund.

For debt funds, long-term capital gains are identical for individual and corporate investors and are taxed at 11.33 per cent without indexation or 22.66 per cent with indexation. Indexation is the process by which inflation is taken into account when doing the tax calculation. This is excellent because it reduces the amount of capital gains and consequently the amount you end up paying as tax.

Where short-term capital gain of debt funds is concerned, the tax treatment is different for an individual and for corporate investors. For individual investors, capital gain is added to his income and is taxable as per the applicable tax slab of that investor. For corporate investors, the rate of tax is 33.99 per cent which includes the tax rate, surcharge and cess. STT is not applicable for debt funds.



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