I took a two-year leave from my job to travel and pursue my interests. Last year, my mutual fund redemption income was ₹5.1 lakh; all these were long-term holdings. The approximate long-term capital gain was ₹2 lakh. Will any tax be payable this year and if so, how will it be calculated?
—Name withheld on request
First of all, congratulations on your sabbatical year. As I understand it, you have won a… ₹2 lakh in the nature of long-term capital gains last year from mutual fund redemptions.
If this gain comes from non-equity funds (i.e. debt funds, liquid funds, etc.), then the income, irrespective of whether long or short, would be at the slab rate.
For example, if you are in a 5% tax bracket, you will pay:
- 200,000 X 5% = ₹10,000,
- If your slab rate is 20%, 200,000 X 20% = ₹40,000,
- If your slab rate is 30%, 200,000 X 30% = ₹60,000.
That is, considering the fact that you do not have any other income presumably, there might not be any tax implications as your capital gain can be adjusted with the Basic Exemption limit of ₹250,000.
On the other hand, if it is about equity funds, then there is a ₹100,000 capital gains exemption that would be applicable for last year, making your taxable income only about ₹100,000. If you have other income during the previous year and used the basic exemption of ₹250,000 you will have to pay 10% LTCG tax which is approximately (100,000 X 10%) or ₹10,000, for the ₹If you have a capital gain of 100,000, otherwise, in both situations you would have no tax liability, assuming you have no other income.
Despite this, we recommend that you file your taxes even if the due date has passed.
Changes in the budget
Finally, you should note that the rules have changed in the recent budget, making your tax liability for equity funds 12.5% over the long term i.e. 1 year.
He ₹The exemption has also been increased from 100,000 to ₹125,000 onwards. In case you have debt funds purchased before March 31, 2023, you will be subject to 12.5% tax if you hold them for more than 2 years. This makes it attractive to hold them, considering that the incremental returns are also subject to 12.5% tax, unlike the regular returns, and in view of the decline in interest rates, there could be some capital gains as well.
Vivek Banka is a co-founder of GoalTeller.
Disclaimer
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.