Income Tax on Mutual Funds in India

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Sakshi Shah

Capital Gains
ITR-2
Mutual Funds
Trading Income

If you have invested in Mutual Funds, you need to file your ITR and pay tax on this income. Trading in various types of mutual funds has become very easy due to the availability of online trading platforms. Under Income Tax, trading in mutual funds is classified as a Capital Gains Income.

ITR for Capital Gains from Investment in Stocks
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Income Heads for Income from Mutual Funds

Capital Gains on Sale of Mutual Funds

  1. Equity Mutual Funds – Since these mutual funds invest in equity-oriented instruments, the treatment is the same as equity shares.
    • Long Term Capital Gain (LTCG): Any gain arising on the sale of equity mutual fund held for more than 12 months is considered as Long Term Capital Gain.
    • Short Term Capital Gain (STCG): Any gain arising on the sale of equity mutual fund held for less than 12 months is considered as Short Term Capital Gain.
  2. Debt Mutual Funds – Since these mutual funds invest in debt instruments, the treatment is similar to other capital assets.
    • Long Term Capital Gain (LTCG): Any gain arising on the sale of debt mutual fund held for more than 36 months is considered as Long Term Capital Gain.
    • Short Term Capital Gain (STCG): Any gain arising on the sale of debt mutual fund held for less than 36 months is considered as Short Term Capital Gain.
Income Tax on Trading
Read about income tax for Investors and Traders. Learn to about trading turnover, tax audit, tax rates, ITR Form, Due Date, set-off & carry forward loss, advance tax, etc
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Income Tax on Trading
Read about income tax for Investors and Traders. Learn to about trading turnover, tax audit, tax rates, ITR Form, Due Date, set-off & carry forward loss, advance tax, etc
Read More

Other Income from Mutual Funds

Not sure how to pay tax on your investments?
Read this article to understand the tax rates for AY 2020-21
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Not sure how to pay tax on your investments?
Read this article to understand the tax rates for AY 2020-21
Read More

Income Tax on Mutual Funds

Type of Mutual Fund Period of Holding Long Term Capital Gain Short Term Capital Gain
Equity Mutual Fund 12 months 10% in excess of Rs. 1,00,000 under Sec 112A 15% under Sec 111A
Debt Mutual Fund 36 months 20% with Indexation Slab Rates

 

ITR Form, Due Date and Tax Audit Applicability for Investors

FY 2019-20: Due Date to file Income Tax Return for both audit and non-audit cases has been extended to 30th November 2020
Tip
FY 2019-20: Due Date to file Income Tax Return for both audit and non-audit cases has been extended to 30th November 2020

Carry Forward Loss for Mutual Funds Trading

Let’s take an example to understand it better:

For example, Mr. Vijay is a salaried individual and has done mutual fund trading in FY 2019-20. His total salary income for a year is Rs. 8,70,000. And has Short Term Capital Loss of Rs. 30000 from Debt Mutual Funds and Long Term Capital Gain of Rs. 2,50,000 from Equity Mutual Funds.

Now in the above example, Vijay needs to file ITR-2 for FY 2019-20. And his total income and tax liability will be as follows:

Particulars Amount Amount
Salary Income   870000
Capital Gains    
Short Term Capital Loss 30000  
Long Term Capital Gain 250000  
Less: Exemption u/s 112A (100000)  
Taxable Long Term Capital Gain 150000  
Total Capital Gains after set-off of losses (taxed @10%)   120000
Total Taxable Income   990000
Tax at slab rate 86500  
Tax at special rate 12000  
Total Income Tax   98500
Health & Education Cess @4%   3940
Total Tax Liability   102440
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FAQs

How do I report income from trading in Mutual Funds in the Income Tax Return i.e. ITR?

A trader should file ITR-2 and report income from trading in Mutual Funds as Capital Gains.
– Equity Mutual Funds – Tax on LTCG is 10% in excess of INR 1 lac and tax on STCG is 15%.
– Debt Mutual Funds – Tax on LTCG is 20% with indexation and tax on STCG is as per slab rates.
The trader can set off LTCL with LTCG and STCL with both STCG and LTCG. The remaining loss can be carried forward for 8 years.

Is Dividend earned on Mutual Funds taxable?

Yes. The dividend income earned on Equity Mutual Funds which was earlier exempt is now a taxable income.
– Dividend up to FY 2019-20 – exempt
– Dividend FY 2020-21 onwards – taxable at slab rates. The amount in excess of INR 5,000 is liable for deduction of TDS under Sec 194K at 10%.

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