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Tax on Equity Mutual Funds in India | Income Taxation on Capital Gains & Dividends - YouTube
Channel: ET Money
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We all invest to earn returns.
In Mutual Fund investment you make returns
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in two ways-through Dividends or by Capital
gains.
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The tax you need to pay on mutual fund returns
are different for debt and equity funds.
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Any fund that invests 65% or more of its corpus
in equities is treated as an equity scheme
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for the purpose of taxation.
And shall we checkout how equity mutual funds
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are taxed in this video.
But before that ... a quick reminder...if
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hit the notification bell!
Done? Great! Okay, let us get started!
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Let us begin by understanding capital gains.
Capital gain is the profit you make when you
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sell any investment including mutual funds.
So if you invested Rs. 50,000 in a fund and
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it grew to Rs. 75,000 when you redeemed, Rs.
25,000 is the capital gain.
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The current taxation rules divide capital
gains into two different buckets, based on
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the duration in which these were generated — Long
term Capital Gains and Short Term capital gains.
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Short term capital gain Tax
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If you sell your investment in equity funds
within 12 months,
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the gains on selling them are treated as short-term
capital gains (STCG) and taxed at 15 percent.
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For example, say Mr. Sharma invested Rs. 35,000
in an equity mutual fund on 25 April 2018,
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and redeemed it with a value of Rs. 50,000
on 22 Feb 2019.
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Since the fund was held for less than 1 year,
gains realized from this proceeding will be
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treated as Short term capital gain.
Therefore, he has to pay tax @15% on Rs 15,000,
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that would be Rs.2,250 plus health and education
cess.
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Long term capital gain Tax
Any capital gains from equity mutual funds
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held for over 12 months are treated as Long
term capital gains
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and you have to pay 10% tax on the gain exceeding
the Rs. 1 lakh limit for the financial year.
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For instance, Mr. Raju invested Rs 50,000
on 1st Jan 2018.
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He redeemed on 1 Feb 2019, he received Rs.
75,000 as redemption value.
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Now his capital gain is Rs. 25,000.
However, as he stayed invested for at least
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12 months and as the gains didn’t exceed
Rs. 1 lakh, he doesn’t need to pay any tax.
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Now suppose he stayed invested for 4 years
and
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redeemed when his investment value was Rs.
1,75,000.
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The capital gains on his investment are Rs.
1, 25,000. He has to pay 10% on the amount
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exceeding Rs. 1 lakh.
Therefore, his tax will be just Rs. 2,500
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-that is 10% of Rs. 25,000, plus health and
education cess
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Now let’s move to- Dividends
If you opt for a dividend plan,
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the scheme will share the profits generated
with you as and when money is available.
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While dividend income is tax-free for you,
the scheme pays dividend distribution tax
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on it.
And this tax is deducted from the amount available
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for sharing as dividends, so it reduces the
amount you finally get.
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For equity funds, the tax rate is 11.64%,
including surcharge and cess.
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And with that we come to the end of our video.
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