From April 1, a new long-term capital gains tax on equity oriented mutual funds and stocks will be applicable. This new 10 per cent tax on long-term capital gains (LTCG) on equity mutual fund investment was proposed in Budget 2018. According to Budget 2018 proposals, long-term capital gains exceeding Rs. 1 lakh arising from redemption of mutual fund units or equities on or after April 1, 2018 will be taxed at 10 per cent (plus cess) or at 10.4 per cent. Long-term capital gains till Rs 1 lakh will be exempt. What is long-term capital gain? It is profit arising from selling of stock or redemption of equity mutual funds held more than one year. A mutual fund that has at least 65 per cent allocation to equities is termed an equity mutual fund for taxation purposes.
5 Things To know About Mutual Fund Taxation
1) Currently, there is no tax on long-term gains from equities. So if you sell before on or before March 31, 2018, there will be no long-term capital gains tax.
2) If the mutual fund units/stocks are sold before one year of holding, short term capital gains tax apply. The short-term capital gains tax has been kept unchanged at 15 per cent.
3) From April 1, long-term capital gains exceeding Rs. 1 lakh arising from redemption of mutual fund units or equities will be taxed at 10 per cent (plus cess). It includes long-term capital gains earned from your equity or mutual fund investments put together in a financial year. For example, if you earn Rs. 2 lakh in combined long-term capital gains from stocks or mutual fund investments in a financial year. The taxable long-term capital gains will be Rs. 1 lakh (Rs. 2 lakh - Rs. 1 lakh) and tax liability will be Rs. 10,000 (10 per cent of Rs. 1 lakh).
5) A tax at the rate of 10 per cent will be levied on dividend distributed by equity-oriented mutual funds from April 1. The effective tax on dividend distributed by equity oriented mutual funds come to 11.648 per cent after inclusion of surcharge and cess.