When we redeem our mutual fund investments after 3-4 years, will the amount that we receive be added to our taxable income?
-Aman
If you invest in any equity fund (an equity fund is defined as a fund that invests at least 65 per cent of its assets in equities) and sell your investments within one year, then you have to pay short-term capital gains tax on your earnings. But if you hold onto your investments for more than one year, then the long-term capital gains from them are tax-free in your hands. The dividends received from equities are also tax-free. If you are investing in a debt fund, then the short-term capital gains from it are added to your taxable income. Long-term capital gains from debt funds, on investments held for more than one year, are subject to either 10 per cent flat capital gains tax or 20 per cent capital gains tax after indexation.
This article was originally published on February 13, 2012.
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