Hello Readers!
Short Term Capital Gains (STCG) tax arises when you hold your investment in a mutual fund or Equity shares only for a few months, and then you redeem them.
Taxation in a mutual fund is based on Capital Gains trends, which are LTCG (Long-term Capital Gains) and STCG (Short-term Capital Gains). We already discussed LTCG in one of our previous blogs. Here in this blog, we will be discussing the STCG and tax liability that you bear.
Capital gains are simply defined as the returns or profits that are generated on our investments, this capital gain is classified into two categories, short term, and long term and taxed accordingly.
STCG for Equity Mutual Funds
If you sell or redeem your Equity mutual funds within a period of 12 months of investment, any profits you make will be considered as short-term gains. The tax applicable to this is a flat 15%.
STCG for Debt Mutual Funds
In debt mutual funds, short-term capital gains are raised in case if you hold your debt mutual fund investment for less than 36 months or 3 years.
What You Must Know?
Do remember that short-term capital gains tax is only applicable if in case you have made any profits and for that, the value of the selling price of your funds should be more than the purchasing value of your funds. If that is not the case, then you end up redeeming your funds at a loss.
For tax purposes, this short-term loss can be written off against any other short- or long-term capital gains and you can carry it forward for eight years if you are not able to do so in the year you book the loss.
Tax Deducted At Source (TDS)
If you remember the Union Budget 2020, then you must be aware of the announcement done regarding the tax to be deducted at source for income arising from mutual fund units. This tax was to be deducted at a rate of 10% of the income or gains.
After this announcement, there was heavy discussion among investors regarding the capital gains. They were confused that will the TDS be applied on capital gains or not? But later it was clarified that TDS will be charged only to dividend income arising out of mutual fund units and not on capital gains.
When Do You Pay Your STCG Tax?
The tax liability is calculated when any individual files his income tax returns, which is ITR. In case if your STCG that is short-term capital gains calculated, is more than Rs 10,000, in that case, you are liable to pay advance tax in the quarter when the gains are realized.
Short-term capital gains in Equity mutual funds are not tax saving or tax-efficient, thus it is advisable, not only as an investment but also for tax-efficient returns, Equity mutual funds should be carried for long-term.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).