Short term capital gain (STCG) tax on equity mutual funds
Short term means buying & selling a mutual funds unit within a period of 12 months. Short-term mutual funds are taxed @ 15% (flat), which is called short term capital gain tax.
For Eg:- If you buy a mutual fund on 1st January 2020 of 10000 and sell it on 31st September 2020 for 20000. Then the total tax will be 1500 (i.e.10000*15%).
If a person’s total income including STCG from a mutual fund is less than or equal to 250000 then the total tax will be zero.
For Eg:- If short term capital gain on mutual funds investments is 50000 & total income including STCG is less than 250000. Then the person is not liable to pay any tax i.e. tax liability is zero.
Long term capital gain (LTCG) tax on equity mutual funds
Long term means buying and not selling a mutual fund unit within a period of 12 months. Long-term mutual funds are tax-free up to 1 lakh & after that 10% LTCG tax.
For Eg:-If you buy a mutual fund on 1st February 2020 of 1000000 & sell it on 21st January 2022 for 2000000. Then the total tax will be 90000 (i.e.1000000-100000=900000, 900000*10%).
The bonus of equity mutual fund taxation
The advantage of long term holding of mutual funds is that you don’t need to pay tax until you sell the units. This means (from the above example) if you hold these units for 10years i.e. until 2030, you need to pay 10% tax (or whatever tax rate at that time) in the tenth year.
Also Read: What is blue-chip mutual funds?