Returns on mutual fund investment are taxed. If one sells their investments in less than 12 months of owning them, their returns are considered as short-term capital gains, but if they sell them 12 months after owning investments, their returns are considered as long-term capital gains. Both types of gains are taxed at different rates.
Mutual fund investment is popular among new-age investors who don’t shy away from taking risk in market-linked investment options. The return that they get on their mutual fund investments are known as capital gains. Capital gains were not taxed till a few years ago, but now, they are taxed under two rates. For investors selling their mutual fund NAVs before 12 months of owning them and earning profit are eligible for short-term capital gains, which is taxed at a 15 per cent rate. Investors who sell their units one year after the investment need to pay long-term capital gains at a 10 per cent rate.
The government gives tax exemption on long-term capital gains up to Rs 1 lakh. So, if one get Rs 3 lakh long-term capital gains, they will be taxed for only Rs 2 lakh gains, which means, at a 10 per cent rate, their tax on Rs 3 lakh capital gains will be Rs 20,000.
After this calculation, one thing that can strike your mind is whether you would be taxed at a flat rate, or you will be taxed as per your income tax slab rate?
So, if there are three investors with Rs 2.50 lakh long-term capital gains each, have opted for the old tax regime, and have salary packages of Rs 8 lakh, Rs 12 lakh and Rs 18 lakh, respectively, will each of them have to pay an income tax of Rs 15,000 each on capital gains, or, will their tax be as per their income tax slab?
Know the answer through expert calculations-
Let us look at the calculation of tax on salary and capital gains separately, since their tax rate treatment is also different.
The table below captures the tax liability on the salary component in each of the 3 income scenarios, under old tax regime (OTR).
| Salary Income | Standard Deduction | Salary Tax Liability (OTR) |
| Rs 8 Lakhs | Rs 50,000 | Rs 65,000 |
| Rs 12 lakhs | Rs 50,000 | Rs 1,63,800 |
| Rs 18 lakhs | Rs 50,000 | Rs 3,51,000 |
Chart Courtesy: Finnovate
Nehal Mota, Co-Founder & CEO, Finnovate, says, “There are two things to note here. Firstly, from AY2024-25 (FY2023-24), the new tax regime (NTR) is the default choice. Hence, while filing returns, you have to specifically select the old tax regime (OTR) as the choice. The second point to note here is that we are assuming that there are no additional contributions made to Section 80C, Section 80D or Section 24 for exemptions. Since standard deduction is available on both regimes, the NTR will result in substantial tax savings in all the three salary income scenarios.”
Let us turn to the capital gains tax. Here we are assuming two things. Firstly, these capital gains pertain to equity fund capital gains and secondly, the individual does not have any other equity capital gains. Their tax on capital gains will be as under.
| Particulars | Amount | Salary Tax Liability (OTR) |
| Capital gains on equity mutual funds | Rs 2,50,000 | Rs 65,000 |
| Blanket exemption per fiscal year | Rs 1,00,000 | Rs 1,63,800 |
| Taxable long term capital gain son equity | Rs 1,50,000 | Rs 3,51,000 |
| Tax at 10% flat (without indexation) | Rs 15,000 |
Chart Courtesy: Finnovate
The tax of Rs 15,000 on LTCG will be independent of the salary income and will be added to the total tax liability. This will be the calculation even if one had opted for the new tax regime (NTR), but taxes would have been saved in salary income.
Source: https://www.zeebiz.com/personal-finance/news-mutual-fund-tax-calculator-calculation-income-taxation-on-rs-250-lakh-long-term-capital-gains-sip-lump-sum-market-linked-short-taxpayers-salary-bracket-285427
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