Mutual fund redemption and taxation

Unlike fixed deposits (FDs), where the accrued interest is taxed every year, gains from mutual funds are taxed only when they are realised, i.e., at the time of redemption. For example, if one invests in an FD for five years and accrues interest every year as - Rs 1,000 in the first year, Rs 1,100 in the second, and so on, these amounts add to the taxable income and are taxed according to the tax slab. If the investor falls in the 30 per cent tax bracket, a tax of 30 per cent is to be paid.

This article was originally published on June 06, 2022.