The MF taxation rules vary for debt and equity funds. For debt funds, the long-term is three years. Any debt fund units held for less than three years qualify for the Short Term Capital Gains (STCG) tax, which is as per your tax slab. Units held longer than three years qualify for the Long Term Capital Gains (LTCG) tax, which is 20.6% with indexation benefit. For equity mutual funds, the long-term is one year. Therefore any units held less than one year qualify for STCG (15.45%), and units held longer than one year qualifies for LTCG, which is tax-exempt
|Short-term capital gain||Individual /HUF/NRI|
|Equity Oriented Schemes||15%|
|Non-Equity Oriented Scheme||Marginal rate of tax|
|Money Market Scheme||Marginal rate of tax|
|Long-term capital gain||Individual /HUF/NRI|
|Equity Oriented Schemes||NIL|
|Non-Equity Oriented Scheme||20% after indexation|
|Money Market Scheme||20% after indexation|
Other tax implications
Securities Transaction Tax (STT) is applicable on all equity shares and mutual funds which are sold on a stock exchange. Any sale which happens on a stock exchange is subject to STT. STT will be deducted only on equity mutual fund units at the time of redemption or switching to other schemes or sale of units and not on their purchase
When STT in paid on the sale of mutual fund Units held for more than 1 year, any gain on sale of units is tax-free.
The rate of STT is 0.001 percent on the sale of units through the stock exchange. STT is deducted at source on sale of mutual fund units. Hence, it is not required to be paid separately by an investor on all sale transactions
There is no TDS for the resident investor. However, TDS is applied to NRI transactions. Further, there is no set-off benefit available for long-term capital loss (LTCL) from equity-oriented funds.
Dividend Distribution Tax (DDT) is applicable when the investment is made under any scheme opting a dividend option. However, you, as an investor, do not have to pay the taxes on your dividend received because they are exempt in the hands of an investor as defined under the income tax act.
DDT is not applicable on equity oriented schemes but it is applicable on debt schemes or money market and liquid scheme, which is around 28.84% (25%+12% Surcharge+3% Cess). The mutual fund companies pay this DDT on debt schemes, therefore, which simply means your dividend will get taxed whenever you will receive it.
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