Investing in Mutual Funds is growing rapidly. Due to the decreasing interest rate in bank FDs, people are increasingly attracted to Mutual Funds. Also, it proves to be tax-efficient instruments from the tax point of view as well.
Mumbai . Investing in Mutual Funds is growing rapidly. Due to the decreasing interest rate in bank FDs, people are increasingly attracted to Mutual Funds. Also, it proves to be tax-efficient instruments from the tax point of view as well. However, fixed deposits are still the preferred investment option for many people. But if you fall in the higher tax bracket, then you have to pay more tax on interest.
Mutual funds have proved to be better in this regard in many ways. Returns received on this are tax calculated differently, instead of adding them to taxable income and calculating tax according to the slab. Apart from these, the Finance Ministry also levies a Securities Transaction Tax (STT) of 0.001 per cent on the purchase and sale of an equity or hybrid equity-oriented fund. No STT is levied on the purchase and sale of units of the debt fund.
There are two types of returns on investment in Mutual Funds There are two types of returns
on investment in Mutual Funds – Dividends and Capital Gains. When the company has surplus cash left, it is given as dividend in proportion to the investment of the investors. To calculate the tax on it, it is added to the taxable income and the tax is calculated according to the slab. At present, dividend up to Rs 10 lakh in a financial year is tax-free.
on the other hand, capital gain is the profit on withdrawal of investment in mutual funds and tax depends on it That the capital has been invested in equity, debt or hybrid funds and for how long it remained invested.
Tax Liability
On Capital Gains Tax Liability on Capital Gains of Equity Funds : If the holding period of Equity Funds is less than 12 months, then the profit on it will be Short Term Capital Gains and flat at the rate of 15% Will have to pay tax. Apart from this, cess and surcharge are also levied on it.
Holding for more than 12 months will attract long term capital gains and gains up to Rs 1 lakh are tax-free. Long term capital gains above Rs 1 lakh are taxable at the rate of 10 per cent and also do not get indexation benefit. Apart from this, cess and surcharge are also levied on it.
Tax Liability on Capital Gains of Debt Funds: Mutual funds having more than 65 per cent of their portfolio in debt instruments come under debt funds. If this fund is redeemed before three years, it attracts short-term capital gains and is added to the taxable income and becomes taxable as per the slab rate. If the units of the debt fund are sold after three years, the profit is long term capital gain and is liable to tax at the rate of 20 per cent after indexation. Apart from this, cess and surcharge are also levied on it.
Capital Gains on Hybrid Funds: Tax will be calculated according to the category to which the mutual fund has more than 65 per cent of the instruments in the portfolio. For example, if more than 65 percent of the exposure is to equities, that is, more than 65 percent of the investment is in equities, then tax will be paid on the basis of equity fund.
