Taxation On Dividend

As per the amendments made in the Union Budget 2020, dividends offered by any mutual fund scheme are taxed in the classical manner. That is, dividends received by investors are added to their taxable income and taxed at their respective income tax slab rates. Previously, dividends were tax-free in the hands of investors as the companies paid dividend distribution tax(DDT) before paying dividends.

Capital Gain Tax- On Mutual Fund

The taxation rate of capital gains of mutual funds depends on the holding period and type of mutual fund. Capital gains realized on selling units of mutual funds are categorized as follows:

Taxation On Equity And Hybrid Fund

Taxation On Debt Fund

Debt funds are those mutual funds whose portfolio’s debt exposure is in excess of 65% and equity exposure is not more than 35%. Starting 1st April 2023, the debt funds will no longer receive indexation benefit and deemed to be short-term capital gain. Therefore, the gains from debt funds will now be added to your taxable income and taxed at the slab rate.

Earlier, the long-term capital gains from debt funds were taxed at 20% with indexation benefit.

Securities Transaction Tax (Stt)

Apart from the tax on dividends and capital gains, there is another tax called the Securities Transaction Tax (STT).

An STT of 0.001% is levied by the government (Ministry of Finance) when you decide to buy or sell mutual fund units of an equity fund or a hybrid equity-oriented fund. There is no STT on the sale of debt fund units.