The tax on mutual funds' capital gains depends on the type of mutual fund scheme the client has invested in and for how long the units of the scheme are held.
Long-term capital gain (LTCG) is the capital gain generated from an asset that an investor holds for a long duration (i.e., a long holding period), while STCG is the capital gain generated on assets held for a relatively shorter duration.
The terms long and short duration differ for equity and debt schemes for tax purposes. The following table gives an overview of the holding periods required for capital gains to be treated as long-term and short-term.
| Fund Type | STCG Holding Period | LTCG Holding Period |
|---|---|---|
| Equity Funds | Less than 12 months | More than 12 months |
| Debt Funds | Less than 36 months | More than 36 months |
| Hybrid Funds | Less than 12 months | More than 12 months |
1) For NRIs TDS will be applicable for any redemption or switch order placed.
2) TDS will be deducted only if the client is having gains for the scheme that he/she is going to redeem.
3) Long-Term Capital Gains (LTCG) are taxed at a rate of 12.5% on amounts exceeding ₹1.25 lakh.
4) Short-Term Capital Gains (STCG) are taxed at 20% for gains withdrawn within one year.
5) If the client is residing in a Tax-Free country, the client has to submit the hard copies of the following documents before placing the redemption/switch order.
a) DTAA form [Double Taxation Avoidance Agreement]
b) Declaration.
c) TRC- For the current FY
d) Passport Copy
e) Overseas address proof
6) NRI tax implications are the same both for NRE and NRO bank accounts.
