Mutual Fund and tax implications

Tax queries 175 views 2 replies

Ram K

216 Points Joined May 2015

Dear Sir/Madam,

Soon I will start investing in Mutual Fund. I have read online but I have a query when it comes to tax implications.

In case of Mutual Fund is the tax implication applicable every financial year (like Fixed deposits) (assuming fund grows over period) or only at the time of withdrawal of fund from the MF.

Say I invest 1 Lac for 5 years and at the end of 5 years I get return of 70000. So after 5 years I withdraw all 1.7L.

Thanks

Replies (2)

Hello Ram,
There is a difference between taxation in case of FD and of Mutual funds.

In the case of FD, the interest is accrued at the end of the period or year end, therefore it is taxed every year.

However, in the case of Mutual funds, tax is levied only on the realised gain and in the year in which such gain is realised.

In your above illustration, you have invested Rs. 1 lac for 5 yrs. Therefore, tax will not be levied for 5 yrs. (Note: You can take deduction of investment in sec 80C if it is ELSS).

In the 6th year, you sell the entire units for a total consideration of Rs. 1.70 lacs. So, tax will be levied on the realised gain i.e. Rs. 70k in 6th year only.
(Note: No tax is levied on Long Term capital Gain u/s 112A upto Rs. 1lac)

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