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Income Tax on Debt Mutual Funds in India

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Sakshi Shah

Debt Funds
income from trading
Income Tax

What are Debt Mutual Funds?

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 Debt Mutual Funds is classified as a Capital Gains Income.

ITR for Capital Gains from Investment in Stocks
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ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals and HUFs having income from sale of securities.
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Income Heads for Income from Debt Mutual Funds

Capital Gains on Debt Mutual Funds

Debt Mutual Funds – Since these mutual funds invest in debt instruments, the treatment is similar to other capital assets.

Income Tax on Trading
Read about income tax for investors and traders. Learn more about trading turnove, tax audit, tax rates, ITR forms, due dates, advance tax, etc.
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Income Tax on Trading
Read about income tax for investors and traders. Learn more about trading turnove, tax audit, tax rates, ITR forms, due dates, advance tax, etc.
Read More

Debt Mutual Fund Taxation

Taxability of Mutual Funds would depend upon the nature of income. Capital Gains on Debt Mutual Funds is taxable as per the table below.

Type of Mutual Fund Period of Holding Long Term Capital Gain Short Term Capital Gain
Debt Mutual Fund 36 months 20% with Indexation Slab Rates

Other Income from Debt Mutual Funds is taxable in the following manner:

  • Dividend Income – Exempt up to FY 2019-20. Taxable at slab rates FY 2020-21 onwards.
Have any questions ?
Have any queries for trading income, ask us on TaxQnA and we will answer it in the simplest way!
Have any questions ?
Have any queries for trading income, ask us on TaxQnA and we will answer it in the simplest way!

ITR Form, Due Date and Tax Audit Applicability for Investors

FY 2019-20: Due Date to file Income Tax Return in case tax audit is not applicable is 31st Decemeber 2020 and when tax audit is applicable it is 31st January 2021
Tip
FY 2019-20: Due Date to file Income Tax Return in case tax audit is not applicable is 31st Decemeber 2020 and when tax audit is applicable it is 31st January 2021
Income Tax Calendar
Don't miss another Income Tax due date. Check out this amazing tax calendar for 2020 by Quicko.
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Income Tax Calendar
Don't miss another Income Tax due date. Check out this amazing tax calendar for 2020 by Quicko.
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Carry Forward Loss for Debt Mutual Funds Trading

Set Off and Carry Forward Losses under Income Tax Act
Refer to this article to learn more about set off and carry forward losses
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Set Off and Carry Forward Losses under Income Tax Act
Refer to this article to learn more about set off and carry forward losses
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Example

Mr. Vijay is a salaried individual and has done mutual fund trading in FY 2020-21. His total salary income for a year is INR 8,70,000. And has Short Term Capital Loss of INR 30,000 from Debt Mutual Funds and Long Term Capital Gain of INR 2,50,000 from Equity Shares.

Now in the above example, Vijay needs to file ITR-2 for FY 2020-21. And his total income and tax liability will be as follows:

Particulars Amount (INR) Amount (INR)
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 Debt Mutual Funds in the Income Tax Return (ITR)?

A trader should file ITR-2 and report income from trading in Debt Mutual Funds as Capital Gains.
Tax on LTCG – 20% with indexation
Tax on STCG – 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.

What is Indexation benefit?

Using the Indexation benefit, the taxpayer can adjust the Cost of Acquisition of the capital asset after considering the effect of inflation. Indexation is calculated using the CII (Cost Inflation Index) issued by the Income Tax Department. The taxpayer is allowed to calculate the indexed cost of acquisition to calculated capital gain on redemption of debt mutual funds. Indexation increases the cost of acquisition and thus lowers capital gains and tax liability.

Is Mutual Fund taxable?

Yes. Income from Mutual Fund is taxable under the Income Tax Act.
(a) Capital Gain on Sale of Equity Mutual Funds – Tax on LTCG is 10% in excess of INR 1 lac and tax on STCG is 15%.
(b) Capital Gain on Sale of Debt Mutual Funds – Tax on LTCG is 20% with indexation and tax on STCG is as per slab rates
(c) Dividend Income on Mutual Funds – Taxable at slab rates from FY 2020-21
(d) Interest Income on Mutual Funds – Taxable at slab

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