Tax on Equity Mutual Funds
- Profit earned from Mutual Fund held for Long Term which more than 12 months is completely tax free.
- Profit earned from Mutual Fund held for Short Term, which is less than 12 months has a flat tax rate of 15% under Capital Gain whether Domestic investor/ NRI
- Dividends derived from Equity Mutual Fund is completely Tax Free.
Tax on non-equity Mutual Funds
- (Debts Funds, Liquid Funds, Money Market Funds and Infrastructure debt Funds)
- Profit earned from non-equity Mutual Fund held for more than 3 years come under long Term Capital Gains, at 20% Indexation/10% without Indexation.
- Profit earned from selling/redeeming non-equity Mutual Fund investments before three years, short-term gains are taxed as per your tax slab.
- Dividends are tax free in the hands of Investors but the Fund House incurs a Dividend Distribution tax of 28.4% which includes Surcharges and Cess.
Equity linked Mutual Fund Savings scheme (ELSS)
- (Tax Saving Mutual Funds) ELSS
- Income Tax Act Sec 80 C allows to claim deductions from a taxable income up to Rs.1,50, 000/- in certain Investments.
- Popular 80 C investment is Tax Saving Mutual Funds or Equity Linked Savings Scheme (ELSS).
- ELSS schemes will have a compulsory lock of 3 years compared to other investments and it is an equity diversified providing benefits of Capital appreciation and tax benefits.
Tax Implications on Investing Directly in Equity/trading through Brokers
- Dividends derived out of investments in shares are completely tax free
- Long-term capital gain (Holding a share more than a year) is tax free
- Short-term capital gain (Selling of Shares for a profit before 12 months) incurs a tax @15%
- Short-term capital gain derived out of equities can be set off against short-term capital loss of different form of investment.
- Capital gains derived out of sale of shares can be carry-forward to settle offset, the capital losses on sale of shares up to 8 consecutive years.