How Can You Calculate STCG Tax on Debt Funds?
Mutual funds are one of the popular investment options available in the market for all age groups. The gains from the mutual fund are taxable under the Income Tax Act. Since mutual funds invest in various types of asset classes, the tax rate on capital gains is determined by the holding period and the type of mutual fund.
The gains earned from the sale of any assets including mutual fund units can be classified into two types: Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG).
Let’s understand how you can calculate STCG Tax on debt funds and the various conditions associated with it. Read along to get further insights about the same.
Debt Mutual Fund Holding Period
Below are the holding period norms specifically for debt mutual funds, including debt-oriented hybrid funds, based on which the taxability is determined:
|
Previous Rules |
New Rules |
|||
|
Fund Type |
Short-term capital gains |
Long-term capital gains |
Short-term capital gains |
Long-term capital gains |
|
Debt Oriented Mutual Funds |
Holding period less than 36 months |
Holding period exceeding 36 months |
Holding period less than 24 months |
Holding period exceeding 24 months |
Note: Any debt mutual fund or debt-oriented hybrid mutual funds purchased after 1st April 2023 will be treated as short-term capital gain/loss.
STCG Tax on Debt Mutual Funds in India
Here are the previous STCG tax rates prior to the Union Budget 2024 based on which you will be able to calculate STCG tax on debt funds:
|
Asset Type |
Holding Period |
STCG Tax |
|
Debt Mutual Fund (purchased before 1st April 2023) |
Up to 36 months |
Applicable slab rates |
|
Debt Mutual Fund (purchased after 1st April 2023) |
Always short-term |
Applicable slab rates |
|
Conservative Hybrid Fund (purchased before 1st April 2023) |
Up to 36 months |
Applicable slab rates |
|
Conservative Hybrid Fund (purchased after 1st April 2023) |
Always short-term |
Applicable slab rates |
|
Balanced Hybrid Fund |
Up to 36 months |
Applicable slab rates |
Here are the new STCG tax rates specifically applicable to debt-oriented mutual fund investments after the Union Budget 2024:
|
Asset Type |
Holding Period |
STCG Tax |
|
Debt Mutual Fund (purchased before 1st April 2023) |
Up to 24 months |
Applicable slab rates |
|
Debt Mutual Fund (purchased after 1st April 2023) |
Always short-term |
Applicable slab rates |
|
Conservative Hybrid Fund (purchased before 1st April 2023) |
Up to 24 months |
Applicable slab rates |
|
Conservative Hybrid Fund (purchased after 1st April 2023) |
Always short-term |
Applicable slab rates |
|
Balanced Hybrid Fund |
Up to 24 months |
Applicable slab rates |
Note: The new STCG rates will be effective from 1st April 2025.
How Can You Calculate STCG Tax on Debt Funds
Let us understand the tax calculation of STCG with the help of an example.
Mr X invested ₹2,00,000 in a debt mutual fund and after 18 months he redeemed the investment at ₹2,40,000.
As the holding period was 18 months, Mr X has made a short-term capital gain of ₹40,000 assuming Mr X falls under the 5% tax bracket.
Therefore, it will be 5% of 40,000 = ₹2,000
₹2,000 is the amount of STCG tax that Mr X will have to pay.
The Bottom Line
By now, you must have got an idea on how to calculate STCG Tax on Debt Funds. Please note that any debt mutual fund or conservative hybrid/balanced hybrid fund purchased after 1st April 2023 will be treated as short-term capital gain or loss.
Understanding the implications of this tax can help optimise returns allowing you to make more informed decisions.