The Union budget of FY25 has announced a few changes in the tax structure of mutual funds, which are bound to impact you if you invest in this asset class. Let’s take a relook at what Finance Minister Nirmala Sitharaman announced.
New capital gains taxes
The FM has fixed LTCG at 12.5% and STCG at 20% from July 23, 2024. Sitharaman also announced that 12.5% LTCG is not only applicable for equity mutual fund investments but also for long-term gains from any investment in financial and non-financial assets. The cut off has been fixed at 1 year — equity mutual funds held more than a year would attract LTCG, while shorter holding periods would attract STCG.
This was done to bring a level playing field and simplifying the capital gains tax structure. The STCG was raised to 20% for specific financial asset investments like equity mutual funds.
Equity fund of fund
The cut-off for holding period for these funds has been changed in the budget for FY25 from 36 months earlier to 24 months now. Now the LTCG rate has been changed to 12.5% from as per tax slab rate earlier while STCG remains unchanged.
Earlier rates
Before the budget, the STCG applicable to equity mutual funds was 15% and LTCG was 10%. The tax on other mutual fund schemes was different and depended on the type of mutual fund from which gains were made.
Debt mutual funds
The STCG and LTCG on debt mutual funds were earlier computed on the basis of holding periods of 36 months. Anything less qualified for STCG and anything more was suitable for LTCG. Both were applicable according to the investor’s income tax slab.
Hybrid funds
However, hybrid mutual fund schemes presented a grey area. If the fund invested more than 65% in equity shares, it would be regarded as an equity-oriented fund and taxed like one. Should debt securities consume 65% of the investments, it would be taxed like a debt fund.
Gold funds
Gold mutual funds were imposed taxes depending on whether the holding period was more than 36 months. If it was more than that level, it would attract LTCG, while anything less than 36 months would attract STCG.
Overseas funds
If one invested in overseas funds, the cut-off was taken as 36 months to determine STCG and LTCG. Anything less than 36 months would qualify for STCG while anything more would attract LTCG.
One of the most significant features of the budget for FY25 has been the changes in the capital gains taxes. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
