Recent budget announcement on capital gains taxation for equity mutual funds and shares. New LTCG rate of 12.5% for profits exceeding Rs. 125,000. Consider holding investments for over a year to benefit.
Policy Budget Announcement on Capital Gains Taxation for Equity Mutual Funds and Shares
The recent budget announcement has outlined changes in the taxation of capital gains for equity mutual funds and shares. Below are the details:
Long-term Capital Gains (LTCG)
Definition: LTCG refers to gains from shares or equity mutual funds held for more than one year.
New Tax Rate: 12.5% on profits exceeding Rs. 125,000.
Example Calculation for LTCG:
Investment Amount: Rs. 500,000
Profit after One Year: Rs. 125,000
Taxable Amount: ZERO (since the profit does not exceed Rs. 125,000)
– If profit exceeds Rs. 125,000, the tax rate is 12.5% (previously, 10%).
Previous Tax Rate: Short-term Capital Gains (STCG)
Old Rate: 15%
New Rate: 20% for STCG, applicable when selling equity mutual funds before one year.
Exit Load
Equity mutual funds typically have no exit load after one year.
Selling before one year may incur an exit load and STCG tax at 20%.
Recommendations
Long-term Investment: Consider holding investments for over a year to benefit from LTCG rates and avoid exit loads.
GST Advantage: No GST is paid on mutual fund investments, unlike insurance premiums that include GST, increasing the overall cost.
Investment vs. Insurance
Term Insurance: Term insurance is good as pure insurance.
Combination Products: Combining insurance with investment often compromises returns due to embedded costs, including GST.
Separate Investment & Insurance: It’s advisable not to mix investment with insurance for better returns and transparency.
By planning judiciously and leveraging these taxation changes, investors can optimize their returns on equity mutual funds and shares.
Excited to learn from the insights of @IrshadMushtag, writer, investor, entrepreneur & Founder of MI Securities! Connect for valuable financial advice at misecurities@bp.sharekhan.com
