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Tax rules for mutual fund investment

Photo: PTI (FILE)

Tax rules for mutual fund investment

new Delhi. Before investing, everyone wants to invest by paying attention to inflation and tax so that the returns are better and savings can be made. Before investing, it should always be noted that they do not have to pay much tax on their investment and get the right return on investment. For better returns in the long term, people often prefer to invest in mutual funds than FDs or any other savings schemes. But many times investors get low returns due to inflation and tax. The government keeps changing tax rates from time to time. But before investing, it is very important for the investors to know about the tax on the returns related to their investment and invest accordingly.

Knowing the tax rules before investing helps you in achieving your investment goals. Investors invest in mutual funds to meet their goals and save. Keeping this in mind, we will give you information about tax rules related to equity and debt mutual funds so that you can achieve your investment goals better.

1. Tax Rules related to Equity Mutual Fund:

  • Investors should choose mutual funds according to their goals. 65 per cent of equity mutual fund companies are invested in equities and get profits as per the market fluctuations.
  • If investors keep the units of the fund for more than 12 months, then long-term capital gains are taxed on their returns.
  • Long-term capital gains tax of up to 10% applicable on long-term investment returns
  • There is no long term gain tax on returns of mutual fund investment up to 1 lakh
  • If you have invested in a mutual fund for a short period, ie for less than 12 months, a short-term capital gains tax of 15% is levied on the return on the units.

2. Tax on returns associated with debt mutual funds:

  • Debt mutual funds invest in fixed income securities such as bonds, government securities.
  • If invested for 36 months or more than 3 years, then units are charged a long term capital gain tax of 20% after indexation.
  • Also, short-term capital gains tax is applicable on returns on fund units for 36 months or less, which is 15% tax or charged according to your tax slab.
  • Tax liability can be easily reduced on the profits from the funds invested through indexation.
  • The amount invested is invested in the fund through indexation, it is increased according to the ratio of inflation.
  • The value of the funds purchased through indexation is adjusted under inflation.

Keep some important things in mind:

  • Get all the risk and fund information before investing in mutual funds
  • If you do not have knowledge of the stock market, then take the advice of an investment advisor.
  • Do complete research about the fund and find out before investing in which stocks the fund is invested in.
  • It is very important to know how strong the fundamentals of the company are before investing.
  • Tax applies only under your tax slab
  • In the scheme of non-equity funds, investors can take advantage of LTCG under indexation.
  • Investors can also get tax exemption under Section 80C of Income Tax on investing in ELSS (Three Year Investment).

This post was published on August 5, 2020 4:54 pm

Content Team

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