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Do I have to pay income tax on the matured amount after the maturity of any mutual fund?

Can someone help if any tax need to be paid on maturity amount of mutual fund?

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Pijush Kanti Biswas

Yes, you need to pay income tax on the matured amount after the maturity of any mutual fund. But you need to pay taxes only on the capital gain on mutual funds. Capital gain on mutual funds is referred to the profit that an investor makes by redeeming or selling the mutual fund unit. It can either be Short Term Capital Gain or a Long-Term Capital Gain depending on holding period of fund. Tax applicable on capital gain is known as Capital Gain Tax.

Capital gain tax is calculated based on 2 factors broadly:

1. Type of mutual fund- Equity or Debt mutual fund

2. Holding period- Shot term or Long term

Let’s see taxation on equity mutual fund first:

1. Short-term Capital Gain tax:

This is applicable on equity mutual funds held for a period of 12 months or less i.e. anything less than 1 years. In short-term capital gain tax rate on these funds is 15% per annum on the amount of gain.

2. Long-term Capital Gain tax:

This is applicable on equity mutual funds held for a period of 12 months or more i.e. anything more than 1 years. In long-term capital gain tax rate on equity funds is NIL.

Now taxation on debt mutual fund:

1. Short-term Capital Gain tax:

This is applicable on debt mutual funds held for a period of 36 months or less i.e. anything less than 3 years. In short-term capital gain tax, tax on funds is calculated as per income tax slab of the individual, i.e. 5%, 20% or 30% on the amount of gain.

2. Long-term Capital Gain tax:

This is applicable on debt mutual funds held for a period of 36 months or more i.e. anything more than 3 years. In long-term capital gain tax, tax on funds is calculated at the rate of 20% with cost indexation on the amount of gain. Indexation is the adjustment of your purchase price with respect to effect of inflation in an economy and helps you to pay low taxes on your capital gain.

 

Indexed cost = (Cost of investment) X (CII for the year of sale/ CII for the year of purchase)

 

CII stands for Cost Inflation Index where the base year is FY 1981-82. The cost inflation index number is released each year by the central tax authorities. Indexation helps in lessen the tax burden by taking inflation in account.

 Hope you understand all about how taxation works on mutual fund.


Happy investing!

Ritika

The taxation on mutual fund gains vary as per the holding period and depending on the type of mutual fund.

Two types of funds need to be understood:

1) debt mutual funds: here the money is invested in fixed income securities such as gov bonds

2) equity mutual funds: here the money is invested in stock market


The holding period of mutual fund units can be short-term or long-term.

for equity funds short term is less than 12 months and long term is more than 12 months

for debt funds short term is less than 36 months and long term is greater then 36 months

and for balanced funds the holding period is same as equity funds



Taxation on debt funds


Long-term gains, which is gains on debt fund units held for over 36 months, are subject to long-term capital gains tax (LCGT) at the rate of 20% after adjusting the price considering inflation Indexation


Short-term gains from debt funds are added to your income and are subject to short-term capital gains tax (SCGT) as per the income tax slab you fall under.



Taxation on equity funds


Gains on equity funds qualify as long-term gains after the units have been held for a period of 12 months. Long-term gains from equity funds are completely tax-free. This includes tax-saving mutual funds–ELSS funds. This means that if you hold your equity fund investments for over a year, you don’t have to pay any long-term capital gains tax (LCGT) on the gains you earn.


Short-term gains from equity funds, if the units are redeemed before 12 months, are taxed at a flat short-term capital gains tax (SCGT) rate of 15%.



Taxation on balanced funds


Balanced funds are equity-oriented hybrid funds that invest at least 65% of their assets in equities. This is why their tax treatment is exactly the same as equity funds.

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.
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