Income tax is one of important aspects in dealing with mutual fund. Investor should aware regarding applicable income tax rates . Post tax return will be impacted by Income tax rate . For example long term capital gain of Rs. 1 Lakhs in exempted in case of equity share and equity mutual fund. Any investment in such product with holding period of more than 12 months are considered as Long term so if Investor is not aware of this Income Tax Provision , it may happen that he or she can sale shares before 12 months and will not get Income tax benefits. This post will help to understand Income Tax rates on Mutual fund in India.
Income earned by Mutual Fund by way of interest , dividend and capital gain is exempted as per section 10(23)(D) of Income Tax Act,1961 as mutual fund is constituted as trust for the benefits of mutual fund investors.
Type of Mutual Fund as per Income Tax :
Before getting in Income Tax rates we have to understand how Income Tax define mutual fund. There are two type of mutual fund as per Income Tax
- Equity oriented Mutual Fund
- Non-Equity oriented Mutual Fund
If mutual fund is holding more than 65% in equity shares listed on recognised stock exchanges in India, it is classified as equity oriented Mutual fund otherwise it is non-equity oriented mutual fund. Further based on type of investor tax rate will be different viz; resident , Non resident and Non-individual Investors.
What are different type of Capital Gains ?
| Type | Equity oriented Mutual Fund | Non-Equity oriented Mutual Fund |
| Short Term Capital Gain | 1 Year or Less | 3 Years or less |
| Long Term Capital Gain | More than 1 Year | More than 3 Years |
Income Tax rates on Mutual Fund ?
Capital Gain Tax
| Type of Gain | Equity oriented Mutual Fund | Non-Equity oriented Mutual Fund |
| Short Term Capital Gain | 15% | Marginal Tax rate as applicable to Investor |
| Long Term Capital Gain | 10% | 20% With Indexation |
In case of Long term capital gain on equity and equity Mutual fund tax is applicable on gain exceeding Rs.1 Lakh. In case of Income Distribution cum Capital Withdrawal (IDCW) Option earlier known as Dividend option , it will be applicable as per applicable tax to investor.
Set-off of Capital Gain:
Capital gain whether it is short term or long term , cannot be set-off against any other Income . Short term capital loss can be set-off against short term capital gain or long term capital gain however long term capital loss can only be set-off against long term capital gain.
Surcharge and Health & Education Cess will be as applicable .
Are you planning to invest in mutual fund? , Please do read our post How to do Investment Planning ? for better understanding . You can compare various mutual fund on money control . Please check link for comparison .
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