Understanding how capital gains tax applies to your mutual fund investments is crucial, especially when filing your Income Tax Return (ITR) for FY2024-25. Many taxpayers find this area confusing due to the different types of funds and holding periods. Let’s break down what you need to know.
Thank you for reading this post, don't forget to subscribe!Key Changes for FY2024-25
The Union Budget 2024 brought in some important changes, particularly for transfers made on or after July 23, 2024. For sales before this date, the old rules apply.
A notable change is the increase in the Long-Term Capital Gains (LTCG) exemption limit for listed equity shares and equity-oriented mutual funds. It’s now ₹1.25 lakh, up from ₹1 lakh previously. This new limit applies for the entire financial year, regardless of when the sale occurred.
Taxation on Equity Mutual Funds
An equity mutual fund invests at least 65% of its portfolio in domestic company equity shares. The tax treatment depends on how long you held the units:
- Long-Term Capital Gains (LTCG): If you held the units for more than 12 months.
- Short-Term Capital Gains (STCG): If you held the units for 12 months or less.
Here’s how they’re taxed:
- Short-Term Capital Gains (STCG):
- For sales before July 23, 2024: Taxed at 15% under Section 111A.
- For sales on or after July 23, 2024: Taxed at 20% under Section 111A.
- Long-Term Capital Gains (LTCG):
- For sales before July 23, 2024: Taxed at 10% under Section 112A, if gains exceed ₹1 lakh.
- For sales on or after July 23, 2024: Taxed at 12.5% under Section 112A, if gains exceed ₹1.25 lakh.
- Important: You don’t get indexation benefit for LTCG on equity mutual funds.
Taxation on Debt Mutual Funds
Similar to equity funds, the taxation of debt mutual funds depends on the holding period, though the timelines are different:
- Long-Term Capital Gains (LTCG):
- For units sold before July 23, 2024: If held for more than 36 months.
- For units sold on or after July 23, 2024: If held for more than 24 months.
- Short-Term Capital Gains (STCG):
- For units sold before July 23, 2024: If held for 36 months or less.
- For units sold on or after July 23, 2024: If held for 24 months or less.
Here’s how they’re taxed:
- Short-Term Capital Gains (STCG): Taxed at your applicable marginal income tax slab rate.
- Long-Term Capital Gains (LTCG):
- For sales before July 23, 2024: Taxed at 20% with indexation benefit under Section 112.
- For sales on or after July 23, 2024: Taxed at 12.5% without indexation benefit under Section 112.
Special Rule for “Specified Mutual Funds” (Acquired on or after April 1, 2023):
If your debt fund invests not more than 35% of its total proceeds in equity shares of domestic companies, any gains from units acquired on or after April 1, 2023, are always treated as Short-Term Capital Gains, regardless of how long you held them. These gains are taxed at your marginal slab rate.
Filing Your ITR for FY2024-25
The tax department offers pre-filled ITR forms, which can simplify reporting capital gains. However, it’s essential to cross-verify this data with your own records, such as capital gain statements from fund houses. Also, check your Annual Information Statement (AIS) and Taxpayer Information Summary (TIS) for a comprehensive view of your financial transactions.
The extended due date for filing ITR for individuals for FY 2024-25 (AY 2025-26) is September 15, 2025.
Navigating capital gains can be tricky. If you have complex scenarios, it’s always a good idea to consult a tax expert or CA to ensure accurate filing and avoid any issues.
