Mutual Fund Taxation Guide
1. Taxation of Equity Mutual Funds
Equity funds invest at least 65% in equities. Tax rules:
- STCG: 15% on units sold within 12 months.
- LTCG: 10% on gains above ₹1 lakh if held for more than 12 months.
Example: ₹50,000 STCG taxed at 15% = ₹7,500.
₹50,000 LTCG taxed at 10% = ₹5,000 (if held for 18 months).
2. Taxation of Debt Mutual Funds
- STCG: Taxed as per income slab if sold within 36 months.
- LTCG: 20% with indexation if held for more than 36 months.
Example: ₹20,000 STCG taxed per income slab.
LTCG of ₹30,000 after indexation taxed at 20% = ₹6,000.
3. Dividend Taxation
Dividends are added to income and taxed according to income slab.
- Residents: 10% TDS if dividend exceeds ₹5,000/year.
- NRIs: 20% TDS on all dividends.
4. Taxation for NRIs
- STCG (Equity): 15%
- LTCG (Equity): 10% on gains above ₹1 lakh
- STCG (Debt): As per income slab
- LTCG (Debt): 20% with indexation
5. Securities Transaction Tax (STT)
STT of 0.001% applies on the sale of equity or hybrid mutual funds.
6. Set-off and Carry Forward of Losses
- Short-term losses offset both STCG and LTCG.
- Long-term losses offset only LTCG.
- Unused losses can be carried forward for up to 8 years.
Summary Table
| Fund Type |
Holding Period |
Type of Gain |
Tax Rate |
| Equity Funds |
< 12 months |
STCG |
15% |
| Equity Funds |
> 12 months |
LTCG (Above ₹1 lakh) |
10% |
| Debt Funds |
< 36 months |
STCG |
As per income tax slab |
| Debt Funds |
> 36 months |
LTCG |
20% with indexation |
Note: Always consult a tax advisor for personalized advice.