Sec 194K of the income tax act clearly states, that TDS is to be deducted by mutual fund companies only on the dividend payment made of mutual funds.
No tax is required to be deducted in the case of capital gain arising on the transfer or sale of mutual fund units.
section 194K explicitly provides that no tax shall be deducted while making payment in respect of capital gain arising from transfer from units.
Taxation of mutual funds
What is long term and short-term gain on mutual funds?
If equity mutual fund is sold within 12 months of purchase, the gain is called short term capital gain.
If equity mutual fund is sold after 12 months of purchase, the gain is called short term capital gain.
However, for debt mutual funds, the criteria is 36 months.
Equity mutual fund: If > 65% is invested in equity.
Debt mutual fund: If the ratio of investment is 50:50 in debt and equity
| Particulars | Tax rate |
| Long term capital gain on equity mutual funds | 10% of the difference of purchase and sale value if the amount exceeds Rs. 1 Lakh.
Also, STT @ 0.01% is applicable on the sale of equity linked mutual fund |
| Long term capital gain on debt mutual fund | 20% of the difference of sale value and purchase value with indexation |
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| Particulars | Tax rate |
| Short term capital gain on equity mutual funds | Tax @15% on the difference of sale and purchase value.
Also, STT @ 0.01% is applicable on the sale of equity linked mutual fund |
| short term capital gain on debt mutual fund | It is taxable as per your income tax slab. |
Setoff and carry forward of losses:
Long term capital loss can be set off only against long term capital gain
Short term capital loss can be set off against long term and short-term capital gain.
However, you can carry forward the long term and the short-term loss for 8 years and use that loss in the next year against your gains.
Conclusion: You will always be more beneficial if go for long term investment and do not withdraw in the middle from the tax point of view.
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