Current Provisions for the Taxation of Mutual Funds as of 2024
With the 2024 budget, the taxation landscape for mutual funds is undergoing significant changes, affecting both equity and debt-oriented funds. This article aims to simplify the new tax provisions and help investors navigate these changes more effectively.
Equity-Oriented Funds
Equity-oriented mutual funds invest at least 65% of their funds in Indian stocks. This includes popular fund types like large cap, mid cap, and small cap equity schemes as well as aggressive hybrid, saving, and arbitrage funds. The 2024 budget has introduced two key changes:
1. STCG Tax Increase
Short-term capital gains (STCG) from selling equity fund units within one year have seen a tax hike. The tax on these gains has risen from 15% to 20%.
2. LTCG Tax Increase
Long-term capital gains (LTCG) from equity funds are now subject to a tax rate of 12.5% instead of the previous 10%. However, this applies only to gains over Rs 1.25 lakh, up from the previous limit of Rs 1 lakh. These changes are effective from July 23, 2024.
Debt-Oriented Funds
With a minimum 65% investment in SEBI-regulated debt instruments, debt-oriented mutual funds include liquid funds, gilt funds, and conservative hybrid funds. The taxation rules for these funds have undergone significant revisions:
Starting on April 1, 2023, gains from debt funds are now added to your income and taxed at your slab rate, regardless of the holding period. Investors who invested before April 1, 2023, face different rules based on the sale date:
If units were sold before July 23, 2024 (the Budget day) If units were sold on or after July 23, 2024Please refer to the table below for the detailed tax calculations. Note: 20% tax includes indexation.
Hybrid Funds
Hybrid funds, which invest between 35% and 65% of their funds in Indian equities, also face changes in their tax provisions:
If units were sold before July 23, 2024 If units were sold on or after July 23, 2024Please refer to the table below for the detailed tax calculations. Note: 20% tax includes indexation.
Other Funds
Other types of mutual funds, such as gold, silver, and international equity funds, have also seen changes:
Invested before April 1, 2023 Invested after April 1, 2023Please refer to the table below for the detailed tax calculations. The key change is that these funds are now taxed more favorably, with a 12.5% LTCG tax if redeemed after 2 years. Prior to the budget changes, higher slab rates of 20% or 30% would have applied.
Conclusion
The 2024 budget has introduced important changes in the taxation of mutual funds, particularly for equity-oriented, debt-oriented, hybrid, and other funds. Understanding these changes is crucial for making informed investment decisions. By following the updated rules, investors can better manage their tax liabilities and optimize their investments.
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