How your income from equity shares and mutual funds will be taxed this year

This post was originally published on this site

Representative image

Income Tax on Gains from Equity Shares and Mutual Funds for FY 2020-2021: Gains on your investment in instruments like equity shares and mutual funds are taxable. As the due date for filing Income Tax Return (ITR) for Financial Year 2020-2021 is near, take a look at how your income from investments in equity shares and mutual funds will be taxed this year.

Under the Income Tax Rules, equity shares are considered capital assets. Hence, the gains on equity shares are taxed as per their holding period.

Related News

For the gains from equity shares to be taxable, a holding period of above 12 months is considered as long term.

In other words, if you hold your investment in equity shares for more than a year, you would have to pay tax applicable to long-term capital gain.

Any gains from holding in equity share for less than 12 months is considered short term capital gain and taxed accordingly.

Tax rates for long-term and short term capital gains

– Long term capital gain from equity shares

Long term capital gain is taxed at the rate of 10% plus cess and surcharge without indexation on gains above Rs 1 lakh in a financial year. It is important to note three points here:

1. The limit of Rs 1 lakh is inclusive of gains on equity mutual funds if any.

2. Gains up to Rs 1 lakh is not taxed.

3. Dividend income from equities is taxed as per the applicable slab rate from Financial Year 2020-2021 onwards.

– Short term capital gain on equity shares

The short term capital gains are taxed at the rate of 15% plus cess and surcharge.

ALSO READ | Top mistakes to avoid while filing Income Tax Return (ITR) for AY 2021-22 this month

Tax on Mutual Funds

Equity Mutual Funds

For equity mutual funds, the same rules apply as equity shares. Thus, for short-term capital gains on equity mutual funds, you will be taxed at 15% plus cess and surcharge. And long-term gains over Rs 1 lakh will be taxed at the rate of 10% plus cess and surcharges

Debt Mutual Funds

The tax on debt mutual funds also depends on the holding period. However, gains made within 3 years is considered as short-term and gains above three years are considered long term. The tax rates in both cases are:

  • Long term: 20% with indexation
  • Short-term: Tax at slab rate plus cess and surcharge.

Hybrid Mutual Funds

If over 65% of assets under management of a hybrid mutual fund is invested in equities, then the gains are taxed similar to equity mutal funds. However, if less than 65% of AUM is invested in equities, then the gains are taxed like debt mutual funds.

Gold Mutual Funds

The tax rate on gold mutual funds is the same as debt mutual funds. You will be taxed at the rate of 20% with indexation for long-term gains and at slab rate for short-term gains from gold mutual funds.

Dividend income from mutual funds

Dividend income from mutual funds is taxed at the slab rate.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Related Posts