How to Calculate Capital Gain Tax on Mutual Funds
Finance Act 2018 had introduced Long Term Capital Gain Tax on sale of Equity shares or units of Equity oriented Mutual Funds u/s 112A w.e.f 01.04.2018. This proposal has deleted the exemptions available u/s 10(38) of the Income Tax Act 1961 on LTCG arising out of the sale of Equity shares or units of equity Mutual Funds. This exemption u/s 10(38) was effective from F.Y 2005-06 to F.Y 2017-18. So before the Finance Act, 2018 long term capital gains were completely tax free.
Section 112A of the Income Tax Act introduced Long Term Capital Gain Tax on Mutual Funds @10% if the capital gains exceed Rs 1 Lakh per annum. In this blog post, we will learn how to calculate both STCG and LTCG Tax on mutual funds.
1. Tax on Mutual Funds⇒Is mutual fund income taxable?
Income from mutual funds is of two types such as short term/ long term capital gains and dividend from equity mutual fund scheme. Therefore, income tax on mutual funds is applicable both for short term capital gains and long-term capital gains. STCG is taxed@15% and there is no change for short term capital gains in the Finance Act 2018. Section 112A of the I.T Act is applicable only for LTCG which is taxed @10% without indexation benefit if your capital gains from the redemption of units of equity mutual fund exceed Rs. 1 Lakh in a financial year. Now, let’s see how to calculate tax on mutual funds in India or income tax on mutual funds redemption.
⇒Income Tax on Mutual Funds at a glance
- Short Term Capital Gains or STCG for equity or Balanced or Hybrid funds are taxed @15%;
- Long Term Capital Gains or LTCG for equity or Balanced or Hybrid funds are taxed @10% if the gains exceed Rs.1 Lakh in a financial year;
- Short Term Capital Gains or STCG for Debt Mutual funds are taxed only as per the existing income tax slab;
- Long Term Capital Gains or LTCG for Debt Mutual funds are Taxable @20% with Indexation benefit.