How Will Equity Mutual Fund Be Taxed Post 2018 Union Budget?

Post the passage of the union budget 2018, Equity Mutual Funds will be taxed both on short and long-term capital gains. A short-term capital gain is a gain accruing for listed securities (including Equity Oriented mutual funds), which are held for a period of under 12 months. Short-term capital gains tax is 15%.

Long-term capital gains are gains arising if the holding period is over 12 months. Long-term capital gains (as introduced in the union budget 2018) tax is proposed at 10 %. This tax is without any indexation benefits.

The union budget 2018 also proposes to tax dividend income from equities or Equity-oriented funds @ 10%. Henceforth, dividend income from all Equity Oriented Mutual funds (including Equity oriented balanced funds) will be taxed.

Grandfather Clause:

Finance mister Mr. Arun Jaitley while presenting the budget gave a huge relief to existing equity investors. All long-term gains accrued till 31stjan 2018 will be grandfathered. This essentially means 2 things;

1. All long-term gains till 31st Jan 2018 will be tax-exempt

2. For the purpose of calculating long-term capital gains tax, price or NAV as on 31st Jan 2108 will be assumed as the acquisition cost. Hence Long-term capital gains will be calculated on gains over and above the price (or NAV) on 31stjan 2018 or the acquisition price whichever is higher. For eg, if an investor has purchased a stock in the month of October 2017 at Rs 100, and the price on 31st Jan 2018 is Rs.120. Supposedly he sells his stock in Nov 2018 at Rs 125. Then his acquisition cost will be deemed to be Rs 120. Hence Long-term capital gains will be calculated as Rs.125-Rs120 = Rs 5. In this case, if the acquisition cost in Oct 2017 was Rs. 122 then the gains will be Rs.125-Rs122= Rs3.