Mutual Funds Taxation: Calculate real time Tax on Mutual Funds with INDmoney

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Mutual Funds Taxation

Mutual Funds are becoming increasingly popular among investors as they are one of the best and most diverse investment instruments that offer an easy and flexible way to create diversified investment portfolios. However, what very few investors know is when to sell their mutual funds, what their gains are and how these gains are taxed. INDmoney identified this user pain point and has come with an amazing feature to help you solve this issue.

INDmoney presents you with real time tax computation on your Mutual Funds to help you  decide whether to sell now or later.

Here is an detailed explanation of how this feature works:

Mutual funds are taxed based on the type of return you earn i.e. returns from dividend earnings and from capital gains.

Tax on Dividend Income

Dividends are paid by companies in which your funds have been invested by the fund scheme. As a mutual fund investor, you will receive dividends as per the proportion to the mutual fund units you are holding. These returns are now considered as ‘income from other sources’ and the same is taxed as per the tax slab based on net annual income.

Tax on Capital Gains

Capital gains are broadly classified into Short term capital gains (STCG) and Long term capital gains (LTCG), and hence, the taxation also varies accordingly. 

Short-term and long-term definitions for each type of mutual fund are also different.

  • In Equity funds

Short-term - Less than 12 months

Long-term - Equal to or more than 12 months

  • In Debt funds

Short-term - Less than 36 months

Long-term - Equal to or more than 36 months

STCG on Mutual Funds

STCG tax on mutual fund redemption in different schemes are as follows:

Fund TypeTax RateTaxation Benefits
Equity Funds15% + Surcharge + Cess on the total capital gainNo Benefits
Debt FundsAs per the investor’s net annual income tax slabNo Benefits

LTCG on Mutual Funds

Mutual fund tax benefits are mainly realized on long term capital gains (LTCG).

Fund TypeTax RateTaxation Benefits
Equity Funds10% + Surcharge + Cess for gains more than Rs 1 lakh.
  • No payable tax for gains up to Rs 1 lakh
  • Exemption up to Rs 1.5 lakh under Section 80C if the investment qualifies as Equity Linked Savings Schemes (ELSS)
Debt Funds20% + Surcharge + Cess
  • Indexation 

How this feature will help you

As we can see, there are more benefits for investors from taxation on long term capital gains than short term. So for example you had invested Rs 10,00,000 in an equity fund at the start of the 2022, made Rs 1,00,000 in gains till now. If you decide to sell it today, you will have to pay 15% + surcharge + cess on total capital gain, So your tax amounts to Rs 15,000.

This feature tells you at what point of time in future your gains move to long term capital gains slab. So if you sell your investments next year, you move to the LTCG slab. Result -> Tax rate reduces to 10% + surcharge from 15% in STGC and No payable tax for gains up to Rs 1 lakh. Hence you will have to pay no tax on your gains as they are within the 1 lakh limit (Assuming you have invested in only this equity fund). Just waiting for few more months can save you up to Rs 15,000 in taxes.

This Feature is available on the “My Funds” section of Mutual Funds on INDmoney App. Login to INDmoney app by clicking here, visit mutual fund dashboard and click on any of your funds to see the details.

Irrespective whether you have bought on IND or outside you can manage, sell/ redeem, switch your funds with single tap on INDmoney!

  • How mutual funds are taxed?

  • Are mutual funds tax exempt?

  • How much tax do you pay on mutual fund withdrawal?

  • How is tax calculated on mutual fund redemption?