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  • Category: Investments

    Will the new 10% Capital Gains Tax affect investments in mutual funds?

    Have a query about the 2018 budget? Looking out for information about the impact of capital gains on mutual funds investments? Find advice from financial experts on this page.

    As per the 2018 Union Budget of India, it is proposed to put a long-term capital gains tax of 10% on the sale of listed securities on gains of over Rs. 1 lakh. I would like to know whether this tax will also affect other investments, especially mutual funds. That is, is that tax applicable to mutual funds' investments as well? On what other financial products or commodities will this tax be applicable?
  • Answers

    13 Answers found.
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  • Yes. You have to pay 10% tax on the gains from these mutual funds. You are exempted to pay tax up to Rs.1,00,000/- gain from MFs gain. After that, for all gains, you should pay the tax. For example, if you have invested one lakh in mutual funds and when you redeem it if you are getting a realisation value of Rs.1,25,000/- . Your gain is 25,000/- rupees. The tax will be 10% of Rs.25,000/- is Rs.2500/-. You have to pay a tax of Rs.2500/- + cess. This will be deducted at source.

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  • The investments made as of 31-01-2018 are exempt from this 10% Long Term Capital Gains tax. All the investments from 01-02-2018 come under the purview of this LTCG tax regime. This step is likely to discourage the investors who invested heavily in mutual funds last year. The investors will think of new avenues to invest their money.

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  • Need a further clarification as per the answer which is given by KVRR:
    (1) This means that if I renew my SIP investment this year, it will be taxed? But if I close it and no longer invest, the money I get back will not be taxed?

    (2) All the earlier investments which I have made in mutual funds will not be taxed?

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  • My answer:-
    (a) As per my understanding, this long-term capital appreciation tax will not be applicable in respect of debt mutual funds and debt-based hybrid funds, which are known as MIP funds. It is applicable for all types of Equity Mutual Funds including Balanced Funds.
    (b) The investments made before or on 31-01-2018 are exempt from this 10% Long Term Capital Gains tax.
    (c) The investors are exempted to pay tax up to Rs.1,00,000/- gain from MFs gain.
    (d) The clear picture will emerge only after the formal Notification is issued by the Government.

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  • The gains accrued until 31-01-2018 are exempt from this tax. For example, if a share or equity fund are purchased for a share value or Rs 100/- NAV per unit, on 01-06-2017. Let the share value or NAV be 150/ as on 31-01-2018. Now if it is sold after one year of holding, that is after 01-06-2018, for say Rs 170/. The total capital gains are Rs70/ per share or NAV of one unit. The LTCG tax is levied on the profit accrued after 31-01-2018. Here, in this case, it is Rs (170-150)= Rs 20/. This Rs 20/ will be taxed at 10%. The LTCG tax is applicable if the gain exceeds Rs100000/ in a financial year.
    The new rule comes into effect from 01-04-2018. If one sells on or before 31-03-2018, there is no need to pay LTCG tax provided the holding period is more than one year. One can plan in such a way that purchasing and selling are done periodically so that the capital gains do not exceed Rs 100000/- in a year. The short term capital gains tax remains at 15%.

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  • The exact details regarding applicability of long term tax will be known once the clarifications and other information is released by the the finance ministry. It is also not clear whether price indexing due to inflation will be allowed or not which is generally allowed on long term securities. Things will be clear after a few weeks only.

    Another aspect about the return on investment whether it is shares or bonds or mutual funds, it depends on various factors and we should not bother much for long term capital gain tax. The reason is the share market and consequently the mutual fund NAV can go very high also in favourable conditions and that will take care of this tax. No one will feel paying it then out of the significant accrued profits.

    So in totality it may not be of much significance for small investors if their gain is less than 1 lakh.

    Big investors will also not mind paying a 10% tax in a long run out of the huge gains.

    Knowledge is power.

  • Today the bank interests rates on our FDs have gone down substantially and we have to see other avenues for investment. Mutual fund is one area where the returns are better than FDs.
    Now Govt is imposing a tax on the long-term gains which will reduce the returns from the mutual funds also.

    Still, the return is lucrative as Indian share markets are poised for growth under the various measures taken by the present Govt and if share market grows there will be a corresponding gain in mutual funds also.

    I strongly believe that this tax imposition will not make much difference in the investment patterns of people in mutual funds.

    Thoughts exchanged is knowledge gained.

  • For any change there will be some immediate panic reaction. But slow;y that will go and people get adjusted to the new dispensation.
    The tax affects only beyond a gain of one lakh rupees. May be when the bill comes for discussion and finally passed there can be some changes in the threshold levels also. But when there is similar taxes in all other investment spheres also, where will one go escaping from this?.After all there is nothing wrong in sharing a small fraction of our gains with the society-via government. Slowly, the free meals are coming to end. When we expect and demand development and all round comforts we have to spend at least something for that as our small share.

  • Yes, definitely it is applicable to mutual fund investment as well.In the union budget of India, the government of India has introduced long-term capital gains tax (LTCG) on the sale of listed securities on gains of over Rs1 lakh. All the gains till 31-01-2018 are exempted and short-term gains remain unchanged at 15 percent. For example, if equity shares are purchased 7 months before 31-01-2018 at Rs100 and the highest price quoted on 31 Jan is Rs150. There will be no tax on the sale if the stock is sold after 1 year. However, any gains in excess of Rs50 earned after 31-01-2018 will be taxed at 10 percent if this share is sold after 31 July 2018.

  • Yes, we have to pay 10% of tax on mutual funds dividends as per union budget 2018-19.
    And it is one of the biggest announcement in this union budget and its actual meaning is that the long term capital gains(LTCG) over 1 lakh rupees at the rate of 10% will be taxable.
    But, only one relief to investors is that the government proposed all gains upto January 31st 2018 will be calculated based on the share price on 31st January.
    Previously this scheme of LTCG was there and it was abolished in the year 2004-05 and it was replaced by Securities Transaction Tax. But this year budget brings back LTCG.
    It is likely to act as a dampner for mutual funds sector which has a steady flow of inflows, the move will also deter some amount of misselling where investors put their money in a particular scheme only to get regular dividends.

  • The recent announcement by the FM in relation to clamping of tax at the rate of 10 percent for the profit earned by way of such investment can prove to be setback the some of the investors but this has not been finalised so far. This would be applicable for all investments exceeding one lakh as long term capital gain.
    While looking other options such as fixed deposits in the Banks where the interest rate is meagre and there would not be immediate gain in investing the money in a ther instruments such as LICor any saving - scheme in the Post - office, the option of choosing mutual - fund of diversified portfolio would not prove to be so bad in terms of investment.
    The trend currently being seen in the share - market is not likely to reverse in the down - ward in the near future and hence any surge in the mutual fund investment would offer better returns despite the 10 percent tax on the profit and such profits cannot be earned in the normal deposits made in Banks, LIC or Post - office. Hence there would not be dampening of the sentiments of the prospective investors in the mutual - fund in the long - run.

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