Here’s How Taxability of Different Types of Mutual Funds Will Impact Your Investment

More and more people are investing in mutual funds these days and rejecting investment avenues of old like fixed deposit, life insurance, public provident fund and direct retail equity. This is mainly due to the professional management of mutual fund houses and their superior returns in comparison to old investment avenues.

You can invest in different types of mutual funds with OroWealth for a balanced portfolio. Let us discuss in further detail how taxability of different types of mutual funds will impact your investment.

  1. Impact on Investment in Equity and Hybrid/Balanced Mutual Funds

The impact of taxation on redemption/sale of equity and hybrid/balanced mutual funds can be summarized by the chart below;

Capital Gains Tax on Equity and Hybrid/Balanced Mutual Fund

Category of Tax Rate of Tax
Resident Non Resident (NRI)
Long Term Capital Gain 10% (if capital gain in the year is above Rs. 1 lakh, otherwise 0%)
Short Term Capital Gain 15%

As evident form the above chart, an investor will have to pay tax at the rate of 0% to 15% on redemption/sale of the above mentioned mutual funds. This is very low in comparison to other taxable investment avenues like fixed deposits which is taxed as per the tax slabs and thus can go up to 30%.

  1. Impact on Investment in Debt Mutual Funds

The impact of taxation on redemption/sale of debt mutual funds can be summarized by the chart below;

Capital Gains Tax on Debt Mutual Fund

Category of Tax Rate of Tax
Resident Non Resident (NRI)
Long Term Capital Gain 20% (with indexation) Listed – 20% (with indexation)

 

Unlisted – 10% (without indexation)

Short Term Capital Gain Based on the Investors Tax Slab Based on the Investors Tax Slab

As evident form the above chart, an investor will have to pay tax at the rate of 0% to 30% on redemption/sale of the above mentioned mutual funds.

  1. Impact of TDS on Mutual Funds

Tax Deducted at Source (TDS) on mutual funds is deducted by the Mutual Fund House while paying the redemption/sale amount. Tax Credit of this TDS can be used by the investor like any other TDS.

The impact of TDS on redemption/sale of mutual funds can be summarized by the chart below;

Type of Mutual Fund Resident Non Resident (NRI)
Short Term Capital Gain Long Term Capital Gain
Equity Fund 0% 15% 10%
Any other Fund 0% 30% Listed – 20% (with indexation)

 

Unlisted – 10% (without indexation)

Notes:

  1. Surcharge at the rate of 0%, 10% or 15% will be applicable on the capital gain tax amount based on the investors tax slab.
  2. Education Cess at the rate of 4% will be applicable on the amount of capital gain tax plus surcharge.

Conclusion

We have seen how the taxability of different types of mutual funds will impact your investment. The tax on them ranges from 0% to 30%. Every investor should take in into consideration while preparing their mutual fund investment strategy. This is especially true for people in the 20% and 30% tax slabs who can save a lot of money by investing in the low taxed mutual funds, i.e. equity and hybrid/balanced mutual funds.