Radhika Gupta on Mutual Fund Taxation Changes Post Union Budget 2024
Radhika Gupta explained the important changes in mutual fund taxation that would occur following the Union Budget 2024.
Radhika Gupta, Edelweiss’s Managing Director and CEO, discussed the significant changes in the taxation of mutual funds following the announcement of the Union Budget 2024.
She noted that previously, mutual funds were categorized differently for tax purposes: some were taxed as long-term or short-term, others were taxed at marginal rates, and some had indexation benefits. The new budget has simplified these categories, eliminating the concept of indexation.
Three Taxation Categories for Mutual Funds:
Gupta outlined the three new taxation categories:
- Equity Mutual Funds: Funds with more than 65% equity are now considered capital assets. They are taxed at 20% in the short term and 12.5% in the long term, with the long-term defined as holdings of more than one year.
- Debt Mutual Funds: Funds holding more than 65% in debt securities are taxed at the marginal rate, with no distinction between short-term and long-term capital gains.
- Other Mutual Funds: This category includes funds that do not fit into the first two categories, such as gold index funds, gold ETFs, funds of funds investing in equity or international funds, and conservative hybrid or hybrid funds. These are taxed at the marginal rate in the short term and 12.5% in the long term, with the long-term defined as holdings of more than two years.
Radhika Gupta about the Impact of the Union Budget on Mutual Funds:
Radhika Gupta emphasized that while last year’s second category remains unchanged, the third category offers a “material benefit” for long-term investors.
Instead of the marginal rate of taxation, long-term investors now face a capital gains tax rate of 12.5% for investments held for more than two years.
