How you will be taxed on your equity share and mutual fund income for the year

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Gains on investments in instruments such as equities shares and mutual funds are taxable in the fiscal year 2020-2021. Take a look at how your income from equities shares and mutual funds will be taxed this year as the deadline for completing your Income Tax Return (ITR) for the fiscal year 2020-2021 approaches.

Equity shares are classified as capital assets by the Income Tax rules. As a result, profits on stock shares are taxed based on how long they’ve been held. A holding duration of more than 12 months is considered long-term for gains from equity shares to be taxable.

In other words, if you maintain your equity stock investment for more than a year, you will be subject to long-term gain tax. Gains on equity shares held for less than a year are called short-term capital gains and are taxed accordingly.

Tax rates for long-term and short term capital gains

Long term capital gain from equity shares

On gains above Rs 1 lakh in a financial year, long-term capital gains are taxed at a rate of 10% plus cess and surcharge, with no indexation. There are three things to keep in mind here:

  1. The Rs 1 lakh limit includes any gains from equities mutual funds if any.
  2. Gains of up to Rs 1 lakh are tax-free.
  3. Beginning in the Financial Year 2020-2021, dividend income from equities is taxed at the applicable slab rate.

 Short term capital gain on equity shares

Short-term capital gains are taxed at a rate of 15%, plus a surcharge and a cess.

Tax on Mutual Funds

Equity Mutual Funds

The same regulations apply to equity mutual funds as they do to equity shares. You will be taxed at 15% plus cess and surcharge on short-term capital gains on equity mutual funds. Long-term gains of more than Rs 1 lakh would be taxed at a rate of 10% plus cess and levies.

Debt Mutual Funds

The tax on debt mutual funds is also affected by how long they are held. Gains of less than three years are considered short-term, while gains of more than three years are considered long-term. In both circumstances, the tax rates are:

  • Long-term investment: 20% with indexation
  • Tax at slab rate plus cess and surcharge in the short term.

Hybrid Mutual Funds

If a hybrid mutual fund invests more than 65 percent of its assets in stocks, the gains are taxed similarly to equity mutual funds. If less than 65 percent of AUM is invested in equities, however, the profits are taxed in the same way as debt mutual funds are.

Gold Mutual Funds

Gold mutual funds are taxed at the same rate as debt mutual funds. Long-term profits from gold mutual funds will be taxed at a rate of 20% with indexation, while short-term gains would be taxed at a slab rate.

Dividend income from mutual funds

Mutual fund dividend income is taxed at the slab rate.

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