LONG TERM AND SHORT-TERM TAX
In mutual funds, there are two types of taxes applicable on the returns you earn—Short-Term Capital Gains Tax (STCG) and Long-Term Capital Gains Tax (LTCG). The type of tax and the rate applied depend on the holding period and the type of mutual fund (equity or debt).
Equity-oriented mutual funds are those where at least 65% of the fund’s assets are invested in equity or equity-related instruments.
-Short-Term Capital Gains (STCG):
- Applicable if the holding period is less than 12 months.
- Tax Rate: 15% on the gains, irrespective of the investor’s income tax slab.
-Long-Term Capital Gains (LTCG):
- Applicable if the holding period is 12 months or more.
- Tax Rate: 12.5% on the gains exceeding ₹1.25 lakh in a financial year. Gains up to ₹1.25 lakh are exempt from tax.