Investing in mutual funds is a popular wealth-building strategy for many Indians, but the taxation involved can be complex compared to fixed deposits or property investments. Taxation on mutual funds is influenced by several factors: the holding period of your investment, the type of mutual fund (equity, debt, or hybrid), and the method of redemption, which follows the FIFO (First In, First Out) principle. This means that the earliest purchased units are considered sold first when you redeem your investment.
For instance, gains from equity mutual funds held for less than 12 months are classified as Short-Term capital Gains (STCG) and taxed at 15%. Conversely, gains from units held for over a year qualify as Long-Term capital Gains (LTCG) and are taxed at 10% for amounts exceeding ₹1 lakh.
Calculating capital gains tax is straightforward: subtract the purchase cost from the selling price to find your taxable gain. For example, if you buy 200 units for ₹2,000 and later sell 150 for ₹3,000, your taxable gain would be ₹1,500.
Starting from FY 2025-26, debt mutual funds are taxed based on the investor's income tax slab, eliminating the previous indexation benefits.
Investors using Systematic Investment Plans (SIPs) must be vigilant, as each monthly investment is treated separately under the FIFO rule, affecting tax liability based on the holding period of each installment.
Understanding these tax implications is essential for effective financial planning, allowing investors to optimize their redemptions and minimize tax liabilities for better net gains.
Disclaimer: This content has been sourced and edited from Indiaherald. While we have made adjustments for clarity and presentation, the unique content material belongs to its respective authors and internet site. We do not claim possession of the content material..jpg)
click and follow Indiaherald WhatsApp channel