You must Sign In to post a response.
  • Tax on Long term gains in mutual funds in India

    Confused whether tax is calculated on the profit made or on the maturity amount? Looking out for this calculation to understand the long term tax gain in Indian mutual funds? Resolve your confusion by going through the responses from our ISC experts and get to know the exact formulae for calculation.

    Suppose I start an SIP of Rs 5000 per month in 2019 for 20 years. The amount invested will be 12 lakhs.
    If the total maturity amount is 50 lakhs then how will the tax be calculated?
    The profit of 38 lakhs is over a period of 20 years.
    Will the tax be calculated on 38 lakhs or only on the profit made in the year the maturity amount was redeemed?
  • Answers

    2 Answers found.
  • With effect from 1st April 2018, the long term capital gain is applicable on mutual funds and the rate of tax is 10%. This will be applicable on the capital gains realised on the mutual fund units sold after keeping them for more than one year. For example, if one has purchased mutual funds on 14th Dec 2017 and sold them on 2nd May 2018 then long term capital gains tax will be applicable as the MF units are held for more than a year.

    For SIP mode of mutual fund investments year wise acquisition cost will be considered and the gain will be calculated for every year separately.

    These are done by the computer software programs but I can give a rough idea of how it is done.

    In the example you have given, the SIP amount is Rs 5000. So, your first year investment is Rs 60000. Against this, you might have acquired some units say 600. After 20 years you have sold these units for say Rs 1.5 lakh. So, the capital gain is Rs 1.5 lakh - Rs 60000 = Rs 90000. On this one has to pay 10% tax amounting to Rs 9000.

    Same thing you have to do for the units acquired in successive years and all taxes to find out the total amount. Remember when doing with a software, these calculations will be done for each of the SIP units separately and adding them for the whole year but that is a finer point and for our understanding we can work out as I explained earlier.

    Please note that in a favourable market the NAV of MF units will go on increasing gradually and the SIP amount of Rs 5000 will be able to acquire lessor and lessor number of units with the time. So by calculating the tax year wise all these variations will be taken care of.

    Knowledge is power.

  • A capital gain is a difference between purchase value and sale value. For example, if you have invested Rs 2 lakhs in a mutual fund. if the value of the same is 3 lakh as on date, your capital gain is Rs 1,00,000. Mutual funds taxation will only apply to this gain in case you are selling the units in the fund. There is no tax on unrealised or accrued gain.
    The mutual funds taxation depends on how long you have held the fund and what type of fund it is.

    Fund Type Holding Period for Long Term Short Term Long Term
    Equity Fund 1 year 15% 10%
    Aggressive Hybrid Equity Fund 1 year 15% 10%
    Capital Gains Annual Exemption
    Long-term capital gains on equity mutual funds are exempt up to Rs 1 lakh per annum.

    always confident

  • Sign In to post your comments