Some more clarity on taxation of mutual funds

There have been some confusion among a section of tax experts with respect to the taxation of MF schemes like debt funds, multi asset allocation where equity exposure is less than 65% but more than 35%, gold/silver ETFs and international/debt FOFs.

In fact, there has been three different interpretation of tax applicability among fund houses. A senior MF official requesting anonymity said that this is due to applicability in terms of date of implementation.

According to one of the latest interpretations on tax applicability released by an AMC and a wealth management company, barring equity funds, all other fund categories will be charged at marginal rate of taxation or applicable slab rates.

Also, units of debt funds that are acquired post April 1, 2023 and sold on any date will be taxed at marginal rate of taxation. However, if  units of debt funds were bought before April 1, 2023 and sold between April 1, 2024 and July 22, investors can get LTCG benefits by paying 20% taxes provided they held such units for at least 36 months. In addition, if such investors sell units on or after July 23, they have to pay LTCG at 12.50% if their holding period is over 24 months.

On applicability of tax on multi asset allocation funds having equity exposure between 35% and 65%, the LTCG of 12.50% will be applicable if units are sold on or after July 23, 2024 and holding period is over 24 months. If units are sold between April 1, 2024 and July 22, 2024, the LTCG rate and holding period will be 20% and 36 months, respectively.

For other schemes like gold/silver ETFs and international and debt FOFs, the benefits of lower LTCG of 12.50% will only be if units are bought before April 1, 2024 and sold after July 23 or sold after April 1, 2025 irrespective of date of acquisition provided the holding period here is over 24 months.

If units are bought post April 1, 2023 and sold till March 31, 2025,  it will be taxed at slab rates.

Let us look at this table to get more clarity.

Source: Edelweiss MF and 360 One Wealth