Shares, Mutual Funds Capital Gain Taxation In India
What is capital gain taxation in India on sale of mutual funds and shares?
Table of Contents
- With the globalisation, Shares and Mutual Funds have become a popular investment asset across the world.
- After opening the doors of foreign investment in India, Shares and Mutual Funds have become a popular investment in India as well.
- As of today, investment in shares and mutual funds are made by all class of people.
- Non-Residents (NRI, Foreign Citizens of Indian Origin) have been speical relaxations in the RBI Regulations to Invest in Mutual Funds and Shares. Other Non-Residents are also allowed to invest in these instruments via the regulated umbrella of RBI.
- Over the past 2 decades, Investments in Shares and Mutual Funds have been attractive from taxation point of view as well.
- Profit or loss on Sale of Mutual Funds and Shares is termed as Capital Gains or Capital Loss in India.
- This capital gain/loss is further categorised as Long Term Capital Gains/Loss and Short Term Capital Gain/Loss. This chart (below) depicts the category of long term and short term capital gain more clearly:
Classification of Capital Gains – As Per Holding Period of Investments |
||
Nature of Asset |
Short Term Capital Gain |
Long Term Capital Gain |
| Listed Shares Or Equity Oriented Mutual Funds | Less Than or equal to 12 Months | More Than 12 Months |
| Unlisted Shares | Less Than or equal 24 Months | More Than 24 Months |
| Debt Mutual Funds | Less Than or equal 36 Months | More Than 36 Months |
Income Tax Act provides special concessional tax rates on Capital Gain arising on sale of Mutual Fund and Shares specifically market linked shares and mutual funds. These rates are much lower as compared to general income tax rates. Hereunder, the below chart) depicts the rates of taxation of long term and short term capital gain arising on sale of mutual funds and shares:
Classification of Capital Gains – As Per Holding Period of Investments |
||
Nature of Asset |
Short Term Capital Gain |
Long Term Capital Gain |
| Listed Shares, Equity Oriented Mutual Funds | 15% (If STT Paid) | – Exempt If Cap Gain is less than Rs 1 Lakh (sec 112A)
– 10% if Capital Gain is more than Rs 1 Lakh (Sec 112A) |
| Unlisted Shares | Normal Rates
(as per Income Tax Slab) |
20% |
| Debt Mutual Funds | Normal Rates
(as per Income Tax Slab) |
20% |
Indexation Of Cost
- Similar to other assets, Long Term Shares and Mutual Funds are also eligible for Indexation benefit.
- Indexation benefit is available on Long Term Capital Asset only.
- Under Indexation provisions, the cost of acquisition of asset is indexed as per the indexation rates of the relevant year. E.g. Shares or Mutual Fund Investment is made in 2018-19 for Rs 1 Lakh, and sold in 2020-21. So, being a long term capital asset Indexation will be Rs 1 Lakh shall be multiplied by the index rate of 2020-21 and devided by index rate of 2018-19. Index rate of 2020-21 will be more than 2018-19. Hence, Indexed Cost of Acquisition is always more than the actual cost, so capital gain reduces to that extent.
- Indexation benefit is not available to Long Term Capital Asset (being Equity Oriented Mutual Funds and Listed Shares), which will be subject matter of taxation @10% (over 1 Lakh Rs Capital Gain) u/s 112A.
Frequently Asked Questions (FAQs)
Indian Taxation Wrt Mutual Funds, Shares Sale Capital Gain
Ans: No, there is no difference between Resident Vs Non-Residents.Non-Residents are eligible for same beneficial rates, taxation and indexation as it is available for resident Indian in relation to their Mutual Funds or Shares Investment and sale in India.