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How to Calculate Tax on Mutual Funds-Easy Solution

How to Calculate Tax on Mutual Funds-Easy Solution

Income 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 [email protected]% 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.

 

 

ArthikDisha- A personal finance blogger. Be confident and make a financial change. Self-learning leads to an informed financial decision.
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