Taxation on mutual funds in India is a crucial aspect that investors need to consider when planning their investment strategies. Understanding the tax implications can significantly impact the overall returns earned from mutual fund investments. With various types of mutual funds available and different holding periods attracting different tax rates, navigating the tax landscape requires careful consideration and planning. From capital gains taxation to dividend distribution taxes, each aspect of mutual fund taxation plays a vital role in determining the tax efficiency of investment portfolios. In this article, we will delve into the complexities of taxation on mutual funds in India, providing insights and guidance to help investors make informed decisions and optimize their tax liabilities
TAX RATES FOR MUTUAL FUND INVESTORS & NRIs
For Taxation purpose, we can divide mutual fund schemes in two categories.
1. Equity-oriented mutual funds schemes
Equity-oriented mutual funds schemes are mutual fund investment options which invest at least 65% of the assets or the portfolio size in equities and equity related instruments. As such, the portfolio of equity-oriented mutual funds will be skewed in the favour of equity investments. Some of the examples are Large Cap, Mid Cap, Small Cap, Flexicap funds, Balanced Advantage Funds etc.
| Tax Rates on EQUITY ORIENTED FUNDS (Subject to STT) | |||||
| Tax Status of Investor | Capital Gains Tax | Tax on Distributed Income under Dividend Option | TDS on Capital Gains | TDS on Distributed Income Dividend Option | |
| Short Term | Long Term | ||||
| Resident Individual / HUF / AOP / BOI / | 15% | 10% | At the applicable Tax slab rate | NIL | 10% |
| Domestic Companies | |||||
| N R I s | STCG – 15% LTCG – 10%$12 | 20% | |||
2. Other than Equity Oriented Funds
Categories of MF Schemes which fall under “Other than Equity Oriented Funds”
- Liquid Funds /Money Market Funds / Income Funds (Debt Funds) / Gilt Funds
- Hybrid Fund (Equity exposure < 65%)
- Gold ETFs / Bond ETF / Liquid ETF
- Fund Of Funds (Domestic) other than Fund of funds as defined under the “Equity Oriented Fund” definition under section 112A of the Act
- Fund Of Funds Investing Overseas
- Infrastructure Debt Funds
- Specified mutual funds as defined under section 50AA of the Act
| Tax Rate on OTHER THAN EQUITY ORIENTED FUNDS | |||||
| Tax Status of Investor | Capital Gains Tax | Tax on Distributed Income under IDCW@ Option | TDS on Capital Gains6,7 | TDS6,7 on Distributed Income under IDCW@ Option | |
| Short Term | Long Term | ||||
| Resident Individual / | At the applicable Tax slab rate | 20% | At the applicable Tax slab rate | NIL | 10% |
| HUF / AOP / BOI / | |||||
| Domestic Companies / Firms | 15%13/ 22%14/ 25%15/ 30% | ||||
| N R I s | At the applicable Tax slab rate | • 20% (Listed Units) • 10%(Unlisted Units) | At the applicable Tax slab rate | STCG – 30% LTCG –• 20% (Listed Units), 10%(Unlisted Units)5 | 20% |
Surcharge Rate as a percentage of Income-tax
| Tax Status | Income < ₹50 lakh | Income > ₹50 lakh but < /= ₹1 crore | Income > ₹1 crore but < /= ₹2 crore | Income > ₹2 crore but < /= ₹5 crore | Income > ₹5 crore |
| Individual / HUF/ AOP (resident & foreign)* | NIL | 10% | 15% | 25% | 37% |
| Tax Status | Income < /= ₹1 crore | Income > ₹1 crore, but < /= ₹10 crore | Income > ₹10 crore | – | – |
| Partnership Firm (Domestic / foreign) | NIL | 12% | 12% | – | – |
| Domestic company | NIL | 7% | 12% | – | – |
| Domestic company (opting for new tax regime) | NIL | 10% | 10% | – | – |
| Foreign company | NIL | 2% | 5% | – | – |
Securities Transaction Tax (STT) in respect of Units equity-oriented mutual fund Schemes
Securities Transaction Tax (STT) is a tax levied on the sale or purchase of securities listed on recognized stock exchanges in India. It was introduced by the Government of India in 2004 as part of the Finance Act, 2004. STT is aimed at garnering revenue from stock market transactions and also serves as a deterrent to speculative trading.
The tax is payable by both buyers and sellers of securities and is typically collected and remitted to the government by the stock exchange or brokerage firm facilitating the transaction. The rate of STT varies depending on the type of security and the nature of the transaction. It is an important component of the overall taxation framework for securities trading in India.
| Transaction | Rates | Payable by |
| Purchase of units of equity-oriented mutual fund | Nil | Not Appliable |
| Sale of units of equity-oriented mutual fund (delivery based) | 0.001% | Seller |
| Sale of units of equity-oriented mutual fund (non-delivery based) | 0.025% | Seller |
| Sale of units of an equity-oriented fund to the Mutual Fund | 0.001% | Seller |
