Mutual funds like any other investment attract tax on capital gains, but it differs for various types of mutual funds. Understanding the tax implications can help you make the right investment and also save and pay appropriate tax on the capital gains.

At a broad level 3 factors determine the Capital Gain Tax on Mutual Funds:

  • Residency status

Status of Residence is classifying whether the individual who has invested in Mutual Funds is a Resident of India or a Non-Residential Indian (NRI).

  • Mutual fund type

There two major classifications:

  1. Equity Oriented Mutual Funds that invest at least 65% in equity and rest may be in debt. E.g. Large Cap Funds and Balanced Funds.
  2. Non-Equity Mutual Funds – Hold less than 65% in equity and rest in debt. E.g. Liquid Funds.
  • Time period of investments

An investment is either long term or short term and also it depends on type of fund.

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Invest in Mutual Funds

Savings Bank Account

Interest on Savings account is exempted from taxation up to Rs. 10,000 annually as per section 80TTA of the Income Tax Act – 1961. Any interest post Rs 10,000 is added to your income and taxed as per your tax slab.

Bank Fixed Deposits

Interest earned on Bank Fixed deposits is added to your income and taxed according to your income tax slab. If the amount of interest is greater than Rs 10,000 annually (per bank account) then TDS is cut by bank at 10%*. Banks will provide you the TDS certificate.

*If you haven’t submitted your Pan Number to the bank, Tax charged on your interest would be 20%.

The above information is based on and for the financial year 2016 – 17. Do keep a track of your Capital Gain Statement every ear in order to be aware of your gains and tax implications.

We at ProsperX wish you the best with your Investments.

ProsperX Editor

Happy Investing!


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