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Guide to Mutual Funds

Capital Gains Tax

In the last chapter, we have discussed the different ways to measure mutual fund returns, but these returns attract taxes. Here in this section, we will discuss Capital Gains Tax


What is capital gains tax?

Any profit or gain which comes from the sale of a capital asset is known as capital gain.


This gain or profit is considered as income and hence charged to tax in the year in which the transfer of capital asset takes place.


This is called capital gains tax which can be short term or long term depending upon the period of holding the investments.


What is the rate at which capital gains  tax  is levied on investors?


If a mutual fund unit is held for less than 1 year, short term capital gains tax is levied @15%. 


If the units are held for more than a year then no tax is levied up to ₹1,00,000. 


The tax rate is 10% on the amount above ₹1,00,000. 


How to calculate Short term and Long Term Capital Gains Tax on mutual funds?


Short term Capital Gains tax is levied at 15%. 


Prior to the Budget 2018, Long Term Capital Gains (LTCG) were tax-free in the hands of the investor. 


Now, any gains which exceed ₹1,00,000 and are derived from securities held for more than 12 months are taxable at 10%. 


The actual method for calculation of long term capital gains tax is to be done as per the special formula proposed in the Budget 2018.

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