amit arun associates
Home Contact Us Site Map
Home about us Latest News Contact us

Fixed Assets Verification Services

Payroll Processing Service

Employee Benefit Administration

Tax Consulting

Foreign Direct Investment

File GST & E-TDS Returns

Capital Gain on Mutual Funds

Posted @ May 2, 2014, 1:34 am under (Capital Gains)


Tax liability of MF return for financial year 2013-14.

Tax liability in case of investment in Mutual Funds may occur in the following circumstances:

  1. Income / dividend distribution
  2. Gain/loss from the redemption of MF

Dividend on Equity MFs

Dividend on Equity MF is completely Tax free for MF unit holder and MF House.


Long term capital gain tax

 Capital gain tax arises at the time of mutual fund investments redemption or sell. Example: Mr. A brought units of equity mutual funds for Rs. 2 lack. He redeems these units after 12 months for Rs. 2.50 lack. Here, Mr. A makes a capital gain (profit) of Rs. 50000.

Thus, if we hold units for more than 12 months and gain money from their redemption, we have to pay long term capital gain tax (LTCG). LTCG tax is tax-free for equity funds. However, securities transaction tax will be deducted on equity funds at the time of redemption / switch to the other schemes or sale of units.


Short term capital gain tax

If the units are held for less than 12 months, they would be treated as short-term capital assets and gain arising from redemption/sale of such units is treated as short term capital gain.

In the same example: If Mr. A  redeems his MF units within six months (instead of a year) and gains Rs. 50000, he has made short term capital gain (STCG) and has to pay STCG tax. STCG tax on MF schemes is 15% for FY13-14. Therefore, Mr. A has to pay Rs. 7500 for FY13-14 (Rs. 50000 x 15% = Rs 7500).


Equity oriented MF schemes for FY13-14


Tax rate for individuals, HUF

Long term capital gain tax

Exempt or nil

Short term capital gain tax

15% (units held for 12 months or less)

Dividend income






Long term capital gains on debt MFs

Debt mutual funds have a differential tax treatment compared to equity. They are taxed in debt funds through dividend distribution tax.  

Taxation Debt MFs FY13-14.

For debt MFs, there is no exemption available for long term capital gains and the following tax rate would apply:

  • 10% without indexation
  • 20% with indexation

Capital gain tax & DDT for debt MFs for FY13-14

Short term capital gain tax on debt mutual funds is 30% assuming that the investor falls into the highest tax bracket.

For example, if an individual comes under 30% income-tax slab, STCG tax would be 30%.

Short term capital gains on debt MFs for FY14


Tax rate for individuals & HUFs

Long term capital gain tax

10% without indexation or 20% with Indexation whichever is lower

Short term capital gain tax

30% (assuming the investor falls in the highest tax bracket)

Dividend income



25% (applicable from 1 June 2013)


DDT on debt MF for FY 2013-14

The dividend income received by a unit holder on his debt MF schemes is tax free for individual and HUF. But, the mutual fund company has to pay a dividend distribution tax (DDT) before distributing this income to its investors @ 25% from June 2013. However, investors may note that such dividends received by them would not be taxed in their hands.




Website :

Website Designing  Company Image Map
Contact us Disclaimer Privacy Policy Site Map