Mutual fund taxation after Budget 2024: New STCG, LTCG rates on equity, debt MFs, ETFs, fund of funds, gold funds, gold ETFs explained The holding periods for short-term and long-term capital gains have been rationalised to 12 and 24 months, respectively. Additionally, the indexation benefit on long-term capital gains has been removed, leading to a uniform tax rate of 12.5% for all asset classes. Short-term capital gains tax on equities and equity-oriented funds has been hiked to 20%. These changes will have a substantial impact on mutual fund returns
Budget 2024 has hiked capital gains taxes — short-term capital gain (STCG) and long-term capital gain (LTCG) — on various capital assets. Further, Union Budget 2024 has also rationalised holding periods of short-term and long-term capital gains. This move will impact your mutual fund (MF) investments as well.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Mutual fund taxation rules have seen many tweaks in the past few years. When these are taken together with the budget proposals, the taxation landscape of mutual funds changes significantly. ET Wealth Online simplifies the latest tax rules on mutual funds for the financial year 2024-25.
Let us start by summarising the capital gains changes announced in Budget 2024.
Budget 2024 changes that mutual fund investors should know
1) There will be only two holding periods — 12 and 24 months — to qualify for short-term or long-term capital assets. All listed securities will be classified as long term if held for over 12 months or one year. Here the word "listed" denotes listed on Indian stock exchanges.All other asset classes will be classified as long term if held for more than 24 months or two years. These rules are applicable from July 23, 2024.
2) Long-term capital gains (LTCG) will be uniformly taxed at 12.5% for all classes of assets. The indexation benefit that investors used to get was removed in Budget 2024. Earlier, some assets enjoyed LTCG tax of 20% with indexation and 10% without indexation. The increased LTCG tax without indexation was made effective from July 23, 2024.
3) Short-term capital gains from stocks, equity funds and units of business trust (InvIT and REIT) will be taxed at 20% as against 15% earlier. The budget has made no change in the STCG rate for other assets. The increased STCG tax is applicable from July 23, 2024.
4) Profits from debt mutual funds, debt ETFs, market-linked debentures, unlisted bonds and debentures will not be classified as short-term capital gains, irrespective of their holding periods.
Mutual fund investments: Difference between listed and unlisted securities and their holding periods
Here are the securities that will be considered listed securities for capital gain taxation:1) Equity mutual funds (even though equity mutual funds are not listed on stock exchanges, they will be considered as listed securities for taxation purposes
2) Equity ETFs
3) Gold ETFs
4) Bond ETFs
5) Foreign equity ETFs listed in India
5) Listed bonds
6) Real estate investment trusts (REITs)
7) Infrastructure investment trusts (InVITs)
8) Sovereign gold bonds (SGBs)
Holding period of listed securities: Keep in mind that gains from all these securities will be considered long term if they are held for more than 12 months. If the holding period is 12 months or less, the gains will be considered as short -term.
Budget 2024: Holding period for unlisted securities
Gains from unlisted securities with a holding period of more than two years will be classified as long-term capital gains. These securities are:1) Gold mutual funds
2) Debt mutual funds (Debt funds bought before April 1, 2023)
3) Real estate
4) Physical gold
5) Unlisted stocks (Indian or international)
6) Foreign equity funds
To make it easier for you, we have made a table that will help you understand which capital asset will attract how much tax after Budget 2024.
Budget 2024: Capital gains tax for equity mutual fund, debt mutual fund, and other mutual funds explained
It is important to understand how the holding period of your mutual fund will impact your capital gains tax. Budget 2024 has simplified holding period norms for mutual funds to determine whether the capital gains will be short term or long term. Here are all the things you need to know about STCG and LTCG holding periods of mutual funds:1) Gains from equity mutual funds held for 12 months or less will be considered as short-term capital gains. When the holding period is more than 12 months, it will be considered as long-term capital gains.
2) Debt mutual funds offerings will continue to be taxed at the investor’s slab rate irrespective of the holding period. "There has been no change to the tax rates for debt mutual funds. Therefore, there is no material impact on debt mutual fund investors. We do not see any significant impact on flows into debt mutual funds," says Prashant Pimple, CIO of Fixed Income, Baroda BNP Paribas MF.
3) Gains from other mutual funds will be considered as short-term capital gains if the holding period is less than 24 months or two years; and long term if the holding period is more than 24 months.
Mutual Fund Taxation: STCG rates, holding period on various mutual fund schemes
Earlier rulesNew rules after Budget 2024
Asset Type
Holding Period
STCG
Holding Period
STCG
Equity mutual funds
Up to 12 months
15%
Up to 12 months
20%
Debt mutual funds purchased before April 1, 2023
Up to 36 months
Slab rates
Up to 24 months
Slab rates
Debt mutual funds purchased after April 1, 2023
Always short-term
Slab rates
Always short-term
Slab rates
Domestic equity ETFs
Up to 12 months
15%
Up to 12 months
20%
International equity ETFs (listed in India) before April 1, 2023
Up to 36 months
Slab rates
Up to 12 months
Slab rates
International equity ETFs (listed in India) after April 1, 2023
Up to 36 months
Slab rates
Up to 12 months
Slab rates
International equity ETFs (listed outside India)
Up to 36 months
Slab rates
Up to 24 months
Slab rates
Domestic debt ETFs purchased before April 1, 2023
Up to 36 months
Slab rates
Up to 24 months
Slab rates
Domestic debt ETFs purchased after April 1, 2023
Always short-term
Slab rates
Always short-term
Slab rates
International debt ETFs purchased before April 1, 2023
Up to 36 months
Slab rates
Up to 24 months
Slab rates
International debt ETFs purchased after April 1, 2023
Always short-term
Slab rates
Always short-term
Slab rates
All fund of funds
Equity-oriented (invests minimum 90% in equity-oriented fund and such equity-oriented fund also invests 90% of proceeds in listed equity shares in India)
Up to 12 months
15%
Up to 12 months
20%
Other funds purchased before April 1, 2023
Up to 36 months
Slab rates
Up to 24 months
Slab rates
Other funds purchased after April 1, 2023*
Always short-term
Slab rates
Always short-term
Slab rates
International fund of funds
Up to 36 months
Slab rates
Up to 24 months
Slab rates
Gold mutual fund before April 1, 2023
Up to 36 months
Slab rates
Up to 24 months
Slab rates
Gold mutual fund after April 1, 2023*
Always short-term
Slab rates
Up to 24 months
Slab rates
Gold ETFs before April 1,2023
Up to 36 months
Slab rates
Up to 12 months
Slab rates
Gold ETFs after April 1,2023*
Always short-term
Slab rates
Up to 12 months
Slab rates
Dynamic/Multi-asset allocation funds
Aggressive hybrid fund *
Up to 12 months
15%
Up to 12 months
20%
Balanced hybrid fund *
Up to 36 months
Slab rates
Up to 24 months
Slab rates
Conservative hybrid fund (Purchased before April 1, 2023)
Up to 36 months
Slab rates
Up to 24 months
Slab rates
Conservative hybrid fund (Purchased before April 1, 2023)
Always short-term
Slab rates
Always short-term
Slab rates
*New rates will come into effect from April 1, 2025
Source: Deloitte and Abhishek Kumar, Founder of SahajMoney.com
Mutual Fund Taxation after Budget 2024: LTCG rates, holding period of various mutual funds
Earlier rulesNew rules after Budget 2024
Asset Type
Holding Period
LTCG
Holding Period
LTCG
Equity mutual funds
>12 months
10% (no indexation)
>12 months
12.50%
Debt mutual funds purchased before April 1, 2023
>36 months
20% with indexation
>24 months
12.50%
Debt mutual funds purchased after April 1, 2023
Always short-term
Slab rates
Always short-term
Slab rate
Domestic equity ETFs
>12 months
10% (no indexation)
>12 months
12.50%
International equity ETFs (listed in India) before April 1, 2023
>36 months
20% with indexation
>12 months
12.50%
International equity ETFs (listed in India) after April 1, 2023
Always short-term
Slab rates
>12 months
12.50%
International equity ETFs (listed outside India)
>36 months
20% with indexation
>24 months
12.50%
Domestic debt ETFs purchased before April 1, 2023
>36 months
20% with indexation
>24 months
12.50%
Domestic debt ETFs purchased after April 1, 2023
Always short-term
Slab rates
Always short-term
Slab rate
International debt ETFs purchased before April 1, 2023
>36 months20% with indexation>24 months12.50% International debt ETFs purchased after April 1, 2023
Always short-term
Slab rates
Always short-term
Slab rate
All fund of funds
Equity-oriented (invests minimum 90% in equity-oriented fund and such equity oriented fund also invests 90% of proceeds in listed equity shares in India)
>12 months
10% (no indexation)
>12 months
12.50%
Other funds purchased before April 1, 2023
>36months
20% (with indexation)
>24 months
12.50%
Other funds purchased after April 1, 2023*
Always short-term
Slab rates
Always short-term
Slab rates
International fund of funds
>36 months
Slab rates
>24 months
12.50%
Gold mutual fund before April 1, 2023
>36 months
20% (with indexation)
>24 months
12.50%
Gold mutual fund after April 1, 2023*
Always short-term
Slab rates
>24 months
12.50%
Gold ETFs before April 1,2023
>36 months
20% (with indexation)
>12 months
12.50%
Gold ETFs after April 1,2023*
Always short-term
Slab rates
>12 months
12.50%
Dynamic/Multi-asset allocation funds
Aggressive hybrid fund *
>12 months
10% (no indexation)
>12 months
12.50%
Balanced hybrid fund *
>36 months
20% (with indexation)
>24 months
12.50%
Conservative hybrid fund (Purchased before April 1, 2023)
>36 months
20% (with indexation)
>24 months
12.50%
Conservative hybrid fund (Purchased before April 1, 2023)
Always short-term
slab rates
Always short-term
Slab rates
*New rates will come into effect from April 1, 2025
Source: Deloitte and Abhishek Kumar, Founder of SahajMoney.com
Budget 2024 changes the definition of 'specified mutual fund': What it means for investors
Budget 2024 has also changed the definition of “specified mutual fund”. According to the Budget Memorandum 2024, "...the definition of 'Specified Mutual Fund' under clause (ii) of Explanation of Section 50AA to provide that a specified mutual fund shall mean a mutual fund: a) a Mutual Fund by whatever name called, which invests more than sixty five per cent of its total proceeds in debt and money market instruments; or b) a fund which invests sixty five per cent or more of its total proceeds in units of a fund referred to in sub-clause (a)."After Budget 2024, there are three broad categories of mutual funds for taxation purposes.
What is equity mutual funds?
If your fund holds more than 65% of its portfolio in Indian stocks, it will be classified as an equity mutual fund. To qualify as an equity fund of funds (FOF) for taxation, the fund needs to invest 90% of its assets in funds that invest 90% of its assets in domestic equity mutual funds.What is debt mutual funds?
If your fund holds more than 65% of its portfolio in bonds or money market instruments, it will be categorised as a debt mutual fund. To be classified as a debt fund of funds, it needs to invest a minimum of 65% of its assets in funds that invest at least 65% of its assets in debt and money market instruments. All debt funds will come under this category.Funds that do not fall under the equity mutual fund and debt mutual fund categories will be categorised as "other mutual funds”. Examples are gold mutual funds and foreign equity funds.
Do remember that the new definitions for mutual funds will apply from April 1, 2025.
Capital gains tax change: Gold funds, overseas funds, fund of funds shine after Budget 2024
Budget 2024 has revised the capital gains tax rate on gold funds or gold exchange-traded funds (ETFs), overseas funds, funds of funds (FoFs) and gold mutual funds. Till now, international mutual funds, gold funds/ETFs and FOFs were taxed like domestic debt funds. Investments of less than three years were classified as short term and those beyond that were termed as long term. Short-term capital gains were taxed as per the applicable income tax slab. Long-term capital gains attracted a tax rate of 20% after providing the indexation benefit.Following Budget 2024, the long-term capital gains on both domestic equity funds and foreign equity funds/ETFs/FOFs will be taxed at 12.5%. There are two key points you need to keep in mind:
1) Only domestic equity investments qualify for the LTCG exemption of Rs 1.25 lakh per financial year — increased from Rs 1 lakh in Budget 2024. Foreign equity investments are ineligible for this benefit.
2) As Arun Sundaresan, Head ETF, Nippon Life India Asset Management, says, "Since gold ETFs are products listed on exchanges, investors can now avail of LTCG if the asset is held for 12 months. However, since gold funds of funds are not listed, investors can claim LTCG if they've held the asset for two years. This will be applicable for transactions conducted April 1, 2025, onwards."
Karan Rijhsinghani, Director of Head of Products & Advisory, Atom Prive Wealth, says, "The recent changes to mutual fund categories, such as hybrid, international, gold funds and fund of funds, are welcome as they eliminate ambiguity and simplify the tax structure. These changes provide investors the opportunity to diversify their investments based on their risk appetite rather than tax implications."
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This story originally appeared on: India Times - Author:Faqs of Insurances
