How taxed short term capital gain & long term capital gain from share market & mutual fund?

Ans: In the new tax regime, the capital gains from mutual funds are treated as follows:

For individuals with income below Rs. 7.5 lakhs:

Short-term capital gains (STCG) from mutual funds are taxable at the rate of 15%.
Long-term capital gains (LTCG) from mutual funds are taxable at the rate of 10% on gains exceeding Rs. 1 lakh in a financial year, without the benefit of indexation.
For individuals with income above Rs. 7.5 lakhs:

Short-term capital gains (STCG) from mutual funds are taxable at the individual's slab rate.
Long-term capital gains (LTCG) from mutual funds are taxable at the rate of 10% on gains exceeding Rs. 1 lakh in a financial year, without the benefit of indexation.
It's important to note that investors have the option to choose between the old tax regime and the new tax regime each year, based on which one is more beneficial to them. The tax treatment of capital gains from mutual funds will differ based on the chosen tax regime.

Ans: Short term - 15% on listed shares and 10% on long term listed shares.

Ans: No, there is no exemption on short-term capital gains tax in the new tax regime or the old tax regime in India for selling shares or equity-oriented mutual funds held for less than one year. Short-term capital gains from these assets are taxed at a flat rate of 15% irrespective of your income tax slab.

Here's a breakdown of the relevant points:

Short-term capital gains (STCG): Profits earned from selling shares or equity mutual funds within one year are considered STCG.
Tax rate on STCG: A flat rate of 15% applies to STCG from equity shares/funds.
New vs Old tax regime: Both regimes follow the same STCG tax treatment.
Exemption applies to Long-term Capital Gains (LTCG) only:

Long-term capital gains (LTCG): Profits earned from selling shares or equity mutual funds held for more than one year are considered LTCG.
LTCG tax exemption: Up to Rs. 1 lakh of LTCG from equity shares/funds is exempt from tax. However, any LTCG exceeding Rs. 1 lakh is taxed at 10% (without indexation benefit).
Looking for tax benefits?

Consider holding your equity investments for more than a year to qualify for LTCG benefits. You can also explore other tax-saving investment options under sections like 80C, 80D etc., which are applicable under both new and old tax regimes.

Ans: If you invest Rs 50,000 monthly in a mutual fund through SIPs for five years, the taxation of your gains depends on the type of mutual fund and the holding period. It’s important to understand how capital gains taxes work to plan your investments efficiently.

Types of Capital Gains

Short-Term Capital Gains (STCG): Gains from units held for less than three years are considered short-term. These are taxed at a higher rate.

Long-Term Capital Gains (LTCG): Gains from units held for more than three years are considered long-term. These attract a lower tax rate.

Taxation Based on Mutual Fund Type

Equity-Oriented Funds: If your mutual fund invests primarily in equity, any gains after holding for more than one year are long-term. These are taxed at 12.5% if the gain exceeds Rs 1.25 lakh in a financial year. Short-term gains (held for less than one year) are taxed at 20%.

Debt-Oriented Funds: Capital gains are added to your income and taxed at your income tax slab rate.

SIP Specific Taxation

Individual SIPs Treated Separately: Each SIP is considered a separate investment. So, if you invest Rs 50,000 monthly, each investment is tracked individually for tax purposes. For example, SIPs made in the first year will become long-term after one year, but those made in the fifth year will be short-term until the next year.

Rolling Nature of Investments: Since you’re investing monthly, you’ll have a mix of short-term and long-term capital gains when you start redeeming. You need to plan redemptions carefully to minimise taxes.

Disadvantages of Index Funds

Limited Flexibility: Index funds cannot adapt to market changes. They simply track the market, which might not always align with your financial goals.

Potential for Lower Returns: Actively managed funds can outperform the market, offering potentially higher returns. Index funds miss out on this opportunity.

The Role of Regular Funds Managed by CFPs

Expert Management: Regular funds managed by a Certified Financial Planner offer tailored advice. This ensures your investments align with your financial goals and risk profile.

Better Tax Planning: A CFP can help you manage your redemptions to minimise taxes. They can also recommend tax-efficient investment strategies.

Investment Strategy Considerations

Invest in Tax-Efficient Funds: Consider funds that offer tax benefits or have a tax-efficient structure. This can maximise your post-tax returns.

Monitor Tax Implications: Keep track of your capital gains and plan redemptions accordingly. Avoid unnecessary taxes by holding investments for the required period.

Consider Increasing SIPs Over Time: As your income grows, increase your SIP contributions. This will enhance your wealth creation without a significant increase in tax liability.

Final Insights

Investing Rs 50,000 monthly through SIPs is a strong strategy for wealth creation. However, understanding the tax implications is crucial. By focusing on the right type of funds and managing your redemptions wisely, you can optimise your returns and minimise your tax liability. Regularly consulting with a Certified Financial Planner will help ensure your investments remain tax-efficient and aligned with your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Unless you book the same, there ought not be any tax implications ie any unrealised gains will not be subjected to income tax. Once you sell the mutual funds and book the profits then you will be taxed at 12.5% / 20% depending upon period of holding (ie long term / short term).

Please take advice from your CA before moving ahead.