Capital Gains Tax On Mutual Funds
Capital gains tax applies to mutual fund investments. It's based on the profit we make when we sell or redeem our mutual fund assets (units). The profit is the difference between the scheme's Net Asset Value (NAV) on the date of selling and the date of acquisition (Selling Price-Purchase Price). The tax on capital gains is further divided into categories based on the length of time that the asset has been held. A holding period of one year or longer is considered long-term for equity funds (funds having an equity exposure more than 65 percent) and is liable to Long-Term Capital Gains (LTCG) tax. If the total capital gain in a financial year exceeds INR 1 lakh, an LTCG tax of 10% is imposed on equities funds. When making financial plans, keep in mind that your gains are tax-free up to INR 1 lakh. It applies to any investments made after January 31, 2018. In equities funds, profits on ownership of less than a year are subject to a 15% Short-Term Capital Gains (STCG) tax. In the case of non-equity funds (debt funds), long-term is defined as a holding period of three years or longer, and there is a 20% LTCG tax on such assets with indexation, which means the purchase price is increased higher for inflation when computing capital gains. Profits from investments held for less than three years are subject to the STCG tax, which is the highest income tax bracket for individuals.