Simplification is the theme that Finance Minister Nirmala Sitharaman followed while framing the changes in taxation for mutual funds in the budget for FY25.
The concept of indexation, which was to adjust returns for inflation over some time and which paved the way for less tax for the seller, has been done away with in the budget for FY25.
Exemption raised for long term gains
Moreover, the limit for long term capital gains which was Rs 1 lakh a year till FY24 has been raised to Rs 1.25 lakh. It means if one makes a gain of more than Rs 1.25 a year, only then would one pay any tax at all.
Equity funds
The biggest category in mutual funds is equity-oriented funds. These are funds where 65% or more money is invested in equities.
If you hold any equity mutual fund unit for more than a year after investing, it will attract long term capital gains tax (LTCG). If sold within the 1 year limit, it will attract short term capital gains tax (STCG).
The LTCG will carry a rate of 12.5% while the STCG will have a 20% rate. These will be computed on the gains made by selling the assets.
Debt funds
The next category of funds is debt funds that invest more than 65% of their money in debt securities. These are taxed at the marginal rate with no concept of short term and long term.
Marginal rate refers to the tax that is applicable on the next rupee of your taxable income. It goes up based on income slabs.
Hybrid funds
The third category of mutual fund could be a conservative hybrid or hybrid fund or gold ETF or a fund of fund.
The LTCG on these funds will be taxed at 12.5%. The STCG will be taxed at marginal rate of the investor’s income.
In this case long term gains will be considered only if the redemption of the units takes place two years after investing.
“Some mutual funds were taxed as long term and short term, some mutual funds were taxed with marginal rates of taxation and some mutual funds had this concept of indexation. With this Budget, all of this gets simplified and the concept of indexation of goes away,” said Radhika Gupta, managing director & chief executive officer of Edelweiss.
Mutual funds are attracting an increasing part of household savings in India. When taxes on this asset class change, it surely concerns a big fraction of the investing community. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
