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Capital Gain on Mutual Funds

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Are you a mutual fund investor? While they offer a compelling investment option, understanding tax implications is crucial. This guide simplifies reporting mutual fund income in your Income Tax Return (ITR).

Understanding Mutual Fund Income:

Dividends: Earned from equity mutual funds; these are considered "Income from other sources" and taxed according to your income slab. You can claim a 20% deduction for interest incurred to earn the dividend.

Capital Gains: Profits from selling mutual fund units are capital gains, while selling at a loss leads to capital losses. Tax rates depend on the holding period (short-term or long-term).

Long-term capital gains:

  • Equity Mutual Funds: Exempt up to ₹1 lakh, remaining taxed at 10%.
  • Debt Mutual Funds: Taxed at 20% after indexation (adjusting for inflation).
  • Short-term capital gains:
  • Debt Mutual Funds: Taxed according to your income slab (held less than 36 months).
  • Equity Mutual Funds: Taxed at 15% (held less than 12 months).

Disclosing Mutual Fund Income in ITR:

Dividend Income: Report this under "Income from other sources" in your ITR. Salaried individuals can use ITR-1.

Income from Sale:

ITR Filing: Anyone with capital gains during the year must file ITR-2 or ITR-3.

Taxation Timeline: Capital gains from mutual funds are taxed only in the year of redemption.

Calculate your Capital Gain Income with our Tax Expert