Your salary and profits realized on redemption of investments in mutual funds are both taxable. The tax relatable to your salary is generally deducted by your employer fully. Tax liability on your mutual funds transaction will depend on whether the same are equity oriented or debt funds and for how long the investments in mutual funds were held on the date of redemption.

The profits realized on equity oriented schemes, which were held for 12 months or less get taxed at flat rate of 15% under Section 111A as short term capital gains.

However, profits on equity oriented schemes held for more than 12 months are treated as long term capital gains and are taxed under Section 112A at flat rate of 10% after initial exemption of Rs. 1 lakh every year. Please note that the initial exemption of one lakh on such capital gains also includes the long term capital gains realized on sale of listed shares on stock exchange and on which Securities Transaction Tax (STT) has been paid.

For your additional tax liability arising due to capital gains realized, you are required to pay advance tax on respective due dates if the net tax liability on your total income after taking credit for TDS exceeds Rs. 10,000/- in a year. In case it is lower than it can be paid as self-assessment tax at the time of filing of your ITR. Alternatively, you can submit details of your other income to your employer and request the employer to deduct additional tax from your salary taking into account such additional incomes as well. The second option will save you the hassle of having to pay the advance tax and interest in case there is delay or default in payment of advance tax.