Get Even More Visitors To Your Blog, Upgrade To A Business Listing >>

Mutual Funds Tax on Investments

Top SIP Funds Online 

Mutual fund investments carry different tax liability for the investor. While some are taxable, others are not if held over a certain period of time under the exemption for long-term capital gains. The returns are taxed under the head 'Income from capital gains' as mentioned under the Income Tax Act.

If you are a Mutual fund investor or planning to invest in a fund, it is important to understand the tax implications, be it long-term capital gain tax (LTCG) applicable or the short term gain tax (STCG). The tax incidence would impact your earnings when you redeem your units.

Mutual Funds are redeemed on a FIFO basis – first in, first out. The units purchased first are redeemed first, and you have to pay the appropriate capital gains tax on any profit. So, for an SIP that ran from January to December, you redeem and are taxed for your January units first and your December units the last

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

Capital Gains Taxation: Short term and Long term
Short-term capital gainIndividual /HUF/NRI
Equity Oriented Schemes15%
Non-Equity  Oriented SchemeMarginal rate of tax
Money Market SchemeMarginal rate of tax
Long-term capital gainIndividual /HUF/NRI
Equity Oriented SchemesNIL
Non-Equity Oriented Scheme20% after indexation
Money Market Scheme20% 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.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300


You can write to us at

Invest [at] SaveTaxGetRich [dot] Com 

This post first appeared on Prajna Capital - An Investment Guide, please read the originial post: here

Share the post

Mutual Funds Tax on Investments


Subscribe to Prajna Capital - An Investment Guide

Get updates delivered right to your inbox!

Thank you for your subscription