Mutual funds mainly earn in two ways. First capital gains and second dividend income. Both earnings are taxed.
There are different tax rules for both equity funds and debt funds.
This assessment year 2021-22 is going on. At present, returns are being filed for the financial year 2020-21. The government has become more strict against tax evaders. In such a situation, it is important to keep in mind that while filing the return, you should give complete information about all your income. In this article, we will learn about the rules of tax on the earnings of mutual funds.
Mutual funds are considered very tax friendly. In fixed deposits, the interest income gets added to your total income, due to which it is a loss deal for the high tax slabs whereas this is not the case with mutual funds. Mutual funds mainly earn in two ways. First capital gains and second dividend income. When companies have surplus money, they distribute it to the stake holders. It is in the form of dividend. Mutual fund investors get the same dividend as the unit. Capital gains are called when they sell their units. If the sales value is more than the purchase value, then it is capital gains. Capital loss occurs when reduced.
Know how tax is paid on dividend income
According to the current rules, if a mutual fund issues a dividend, then this income gets included in your total income. After that, tax is deducted at the same rate in the tax slab you fall under. Earlier, the dividend income was tax free as companies deducted the dividend distribution tax. On March 12, the Income Tax Department has issued a circular in which mutual fund companies have been asked to share the complete information with the tax department on sharing of capital gains and dividends.
There is a tax on capital gains in two ways
Capital gains are taxed in two ways. It depends on what kind of fund you have. If you have invested in an equity fund, it will be a short-term capital gain if you sell the unit before 12 months and it will be a long-term capital gain if sold after holding for more than 12 months. Debt fund will attract STGC tax for 36 months while LTCG tax will be levied on it. Both types of funds charge a flat 15 per cent tax on short-term capital gains, while capital gains are tax-free up to 1 lakh in long-term capital gains. After that a flat tax of 10 per cent is levied.
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