The earning earned annually or grown over time are taxed under the income tax act, these mutual funds are liable to pay taxes on earnings generated from them , if is above the threshold of income tax slab rates for taxation, or a predefined criteria for taxation has been meet.
Before studying that let us understand the long term capital gain and short term capital gain criteria-
- Long term capital gain–
- When investment is kept in more than 12 months in equity oriented mutual fund (i.e. fund having more than 60 percent investment in equity ) , then they are taxed in long term capital gains.
- When investment is kept in more than 36 months in debt oriented fund (i.e. more than 60 percent in debt oriented funds) , then they are taxed in long term capital gains.
- Short term capital gains–
- When investments are kept for less than 12 months in equity oriented schemes. Then they are taxed in short term capital gains.
- When investments are kept for less than 36 months in debt oriented schemes , then they are taxed in short term capital gains .
Taxation-
- Long term equity gains are taxed at ten percent, with the facility indexation, indexation helps in calculating the present cost of investments done before at least a year .
- Long term debt funds are taxed at 20 percent with indexation.
- Short term equity funds are taxed at 15 percent of the total gain received.
- Short term debt funds are taxed at tax slab rates of the income tax, in which the investor falls, they are added to the total income of tax player, they are not charged separately under different head.
- Also, under section 80 of income tax ,if equity mutual funds are kept for more than 3 years . they are entitle for earring rebate of 1 lac , ie. If you keep ten lac in equity mutual fund , and your value after 3 years become 2.5 lac , then you will be taxed for 50 thousand rupees, since 1 lac is rebate , also this 50 thousand is taxed with indexation, that makes your tax liability on some where 40,000 rs , on which tax will be charged ten percent i.e. 4000 only.
In , precise, it is wise to keep investment in long term plans in mutual funds .though yu can exit before also , if scheme you choose is not performing or as per your situation and money management.
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