How profits on mutual funds are taxed for a salaried person? In addition to my salary income, I have income from equity mutual funds. How will my tax liability be calculated?
Reply by Balwant Jain, a tax expert.
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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 while paying the salary on monthly basis.
Tax liability in respect of your mutual funds transaction will depend on whether the same are equity-oriented schemes or debt funds. This will also depend on how long the investments in mutual funds were held on the date of redemption. The profits realized on equity oriented schemes, held for 12 months or less get taxed at flat rate of 20% under Section 111A as short term capital gains after presentation of recent budget.
The 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 12.50% after initial exemption of Rs. 1.25 lakh every year. Please note that the initial exemption of Rs 1.25 lakh on such long term capital gains applies to the long term capital gains realized on sale of listed shares on stock exchange and equity mutual funds taken together on which Securities Transaction Tax (STT) has been paid. Debt funds are taxable as per your slab rate.
For your additional tax liability arising due to capital gains realized, you are required to pay advance tax on specified 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 Rs 10,000 the tax liability can be discharged as self-assessment tax at the time of filing of your ITR. Alternatively, you can submit the 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. These details can be furnished in form 12B. This will save you the hassle of having to pay the advance tax and also save on interest in case there is delay or default in payment of advance tax.
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