If you’ve invested in mutual funds, understanding how your returns will be taxed is just as important as tracking market performance. Tax rules can directly impact your net gains, and with a few recent changes in place, knowing how your mutual fund investments will be taxed during ITR Filing FY 2024-25 is crucial.
Whether you’ve earned dividends or capital gains, every kind of income is taxed differently. In this article, we explain mutual fund taxation for the current assessment year and illustrate how you can minimize your tax outgo without hassle.
Tax on Capital Gains in Mutual Funds
1. Equity Mutual Funds
These are funds in which a minimum of 65% of the portfolio is invested in equities. The returns from these are taxed according to the holding period:
- Short-Term Capital Gains (STCG): Where units are sold within a period of 12 months, gains are taxed at 15%.
- Long-Term Capital Gains (LTCG): Where held for over 12 months, gains above ₹1 lakh in a financial year are taxed at 10% without indexation.
2. Debt Mutual Funds
As opposed to previous years, the indexation benefit is not applicable on debt mutual funds bought on or after 1st April 2023. This implies:
- Short-Term or Long-Term Gains: Irrespective of the holding time, gains from debt mutual funds are taxed based on your income tax slab.
If your income is in the higher tax slab (for example, 30%), your returns from debt funds can be subject to higher tax outgo.
Need assistance planning in light of these changes? Tax2win’s CAs can assist you in restructuring your investments to reduce your tax burden.
3. Hybrid Mutual Funds
The taxability of hybrid funds is based on the equity exposure:
- Equity-Oriented Hybrid Funds: Taxed similarly to equity funds.
- Debt-Oriented Hybrid Funds: Taxed similarly to debt funds (on slab rate, no indexation benefit).
Tax on Mutual Fund Dividends
Dividends from mutual funds are now taxed in the hands of investors according to their relevant income tax slab.
Earlier, the fund house used to deduct Dividend Distribution Tax (DDT), but now investors are required to pay tax on dividends themselves. Also, TDS of 10% is deducted on dividend payments above ₹5,000 in a year.
So, if you get dividends from mutual funds, ensure that you report them in your ITR.
Tax Filing Tip: Don’t Miss Out on Reporting MF Gains
One of the most frequent reasons for getting a tax notice is not reporting mutual fund gains properly. Be it capital gains or dividend income, everything needs to be reported in your ITR even if your overall income is less than the taxable limit.
Knowledge of mutual fund tax is crucial to intelligent investment, and tax filing in the proper way prevents you from paying more than necessary.
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Book Online CA services from Tax2win today and let us relieve the tax stress from your shoulders, so that you can concentrate on expanding your investments.