Beware of your Tax liabilities! Your income from equity shares and mutual funds will be thus taxed this year
Income Tax on Gains from Equity Shares and Mutual Funds FY 2020-2021: Gains on your investment in instruments like equity shares and mutual funds are taxable.
Income Tax on Gains from Equity Shares and Mutual Funds for FY 2020-2021: Gains on your investment in instruments like equity shares and mutual funds are taxable. As the due date for filing Income Tax Return (ITR) for Financial Year 2020-2021 is near, take a look at how your income from investments in equity shares and mutual funds will be taxed this year.
Under the Income Tax Rules, equity shares are considered capital assets. Hence, the gains on equity shares are taxed as per their holding period.
For the gains from equity shares to be taxable, a holding period of above 12 months is considered as long term.
In other words, if you hold your investment in equity shares for more than a year, you would have to pay tax applicable to long-term capital gain.
Any gains from holding in equity share for less than 12 months is considered short-term capital gain and taxed accordingly.
Tax rates for long-term and short term capital gains
– Long term capital gain from equity shares
Long term capital gain is taxed at the rate of 10% plus cess and surcharge without indexation on gains above Rs 1 lakh in a financial year. It is important to note three points here:
- The limit of Rs 1 lakh is inclusive of gains on equity mutual funds if any.
- Gains up to Rs 1 lakh is not taxed.
- Dividend income from equities is taxed as per the applicable slab rate from Financial Year 2020-2021 onwards.
– Short term capital gain on equity shares
The short-term capital gains are taxed at the rate of 15% plus cess and surcharge.
Tax on Mutual Funds
Equity Mutual Funds
For equity mutual funds, the same rules apply as equity shares. Thus, for short-term capital gains on equity mutual funds, you will be taxed at 15% plus cess and surcharge. And long-term gains over Rs 1 lakh will be taxed at the rate of 10% plus cess and surcharges
Debt Mutual Funds
The tax on debt mutual funds also depends on the holding period. However, gains made within 3 years is considered as short-term and gains above three years are considered long-term. The tax rates in both cases are:
- Long term: 20% with indexation
- Short-term: Tax at slab rate plus cess and surcharge.
Hybrid Mutual Funds
If over 65% of assets under management of a hybrid mutual fund is invested in equities, then the gains are taxed similar to equity mutual funds. However, if less than 65% of AUM is invested in equities, then the gains are taxed like debt mutual funds.
Gold Mutual Funds
The tax rate on gold mutual funds is the same as debt mutual funds. You will be taxed at the rate of 20% with indexation for long-term gains and at slab rate for short-term gains from gold mutual funds.
Dividend income from mutual funds
Dividend income from mutual funds is taxed at the slab rate.
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