Impact on Mutual Fund of Union Budget

The Union Budget 2024 has introduced significant changes in the budget in 2024  to the taxation of mutual funds,  aiming to simplify the tax structure and provide clarity for investors. These changes  impacted various types of mutual funds differently, altering  how they are taxed in both the short and long term. Mutual funds they investe  let you pool in this your money with other investors to “mutually” buy  the stocks, bonds, and other investments. It was  run  by professional money managers  that decided which securities to buy (stocks, bonds, etc.) and when to sell them. You get  that  exposure to all the investments and save them  in the fund and any income saved and  they generate.

a)Short Term capital gains tax on Equity oriented Funds increased 20% (current 15%) :-   

Short-term gains that was a peacified financial  in this assets shall henceforth attract a tax rate was a  20 percent instead of 15 percent, while that was a on all other financial assets and non-financial assets shall will be continue to attract the applicable tax rate,” said Nirmala Sitharaman, that was  Union Finance Minister of India in the budget. Section 111A of the income tax act  deals with the taxation of  the  sale of listed equity shares,mutual funds  that invest equity shares ,and units of business trust. If you listed equity shares after completion of 12 months then capital gain or loss will be categorized  as a long term. On the other hand  ,for unlisted equity shares , if sold 24 months , the gain or loss  will be called short terms. and that benefit from such a low rate is flowing largely to high net worth individuals. Other short-term capital gains shall continue to be taxed at applicable and medium  rate.”

b) Long Term Capital Gains tax now will be 12.5% (earlier it was 10% for Equity fund and 20% for other funds with Indexation):-

Long -term was changed  to 12.5% and then frome  current rate it was 10% to 12.5%  it was as applicable.  Listed equity shares, funds, and business trusts gains over Rs 1.25 lakh are taxable, promoting longer investment periods.”  There are various exemptions available under the Income-tax Act that help to reduce the LTCG chargeable to tax as the capital gain amount is reinvented in certain specific  assets or instruments. there was to be a specified area to claim these deductions i.e. certain conditions are to be  most met to claim these exemptions. Assets  it was  called  to be as long-term if held for more than 36 months, except for certain exceptions where the period is shorter: listed shares and equity-oriented funds qualify  if held for more than 12 months, while immovable to   will be property and unlisted shares require that as  a holding period of over 24 months to be considered long-term capital assets . In this article, we will discuss the long-term capital gains in detail, including the tax rates and  calculations, exemptions, and examples.

c) Indexation removed.  One will not get benefit of Indexation:-

Indexation benefit at the  budget 2024 removed the  hitherto applicable property sale. Till now, LTCG was on property sale and was being taxed at 20% with indexation benefit. Now, the rate stands  were reduced to 12.5%,  and the seller has no indexation benefit . Indexation adjusts purchase price for inflation, reducing tax liability on gains from investments like debt funds. Government eliminated indexation  that was beneficial on long-term capital gains, possibly increasing taxable gains. It prevents inflation from eroding returns and is applicable and then  to long-term investments. Budget 2024 has removed the indexation benefit hitherto applicable to property sale. Till now, LTCG on property  that was sold was being taxed at 20% with indexation benefit. Now, the rate stands  for will be reduced to 12.5%, but the seller will have no indexation benefit. For individuals, the indexation allowance was  frozen in 1998 and then eliminated in 2008.

d) Long Term is now defined as 12 months for equity oriented funds and 24 months for other funds :-  

Long term periods as set will be held  classified as a : over as a 12 months for listed financial assets and  then over 24 months for unlisted financial and non-financial assets. Short-term capital gain that was tax on equity shares and  then equity funds rises to 20%, while  then other short-term gains remain at applicable tax rates. Shares listed , it was on stock exchanges and then was  included in units  and then was  listed business trusts, will be certain  considering it was  long-term after holding for 12 months. All other assets, including unlisted shares, immovable property, bonds and debentures, and gold, will be considered long-term after holding for 24 months. In the case of equity investing, long-term means a holding period of more than one year from the date of purchase. Long-term capital gains  that were  the profits earned  and then on the sale of listed equity shares. Capital structure can be described for the meaning of Capital structure can be described as the arrangement of capital  and then by using different sources of long term funds  that consists of two broad types it is equity and debt. The different types of funds that are raised by a firm include preference shares, equity shares, retained earnings, long-term loans, etc.

e) No Long Term capital Gains for mutual funds which have 65% or more in debt.  Everything is short term in such funds:-

The Union Budget of July 23 hiked the STCG tax on equity mutual funds to 20 percent from the current 15 percent, while LTCG tax now will be 12.5 percent compared to earlier, which was 10 % on equity funds.  and was To avoid LTCG tax on mutual funds, stay invested in debt funds for over three years to benefit from indexation and  reducing taxable gains. For equity funds,  LTCG tax applies only if annual returns exceed Rs. 1 lakh. Manage investments and time redemptions effectively to minimize  the tax. Section 54EC provides that you do not have to pay LTCG tax on the sale and then dispose  of any long-term capital assets if the capital gains are invested in the designated government bonds and instruments. The bonds must be purchased within six months following the asset’s sales. The best way to avoid the capital gains distributions associated with mutual funds was  to invest in exchange-traded-funds (ETFs) instead. ETFs are structured in a way that allows for   more efficient tax management. Bonds are traditionally considered one of the safer investment vehicles because they provide returns of principal and guaranteed interest payments each year. When it comes to protecting your mutual fund investment from economic recession , government-issued bonds are even safer than corporate bonds.

f) Gold Funds, International Funds etc are now eligible for Long Term Capital Gains (> 2yrs) @ 12.5%:-

All the changes in the new capital gains tax rate and holding period, except for gold and international funds,will be effective immediately from July 23, 2024, and then was   announced Budget 2024. These long-term capital gains on gold and international funds will be taxed at 12.5%. Capital Gains Tax (CGT) was a tax on the gains or and the  profit you make when you sell, give away, or otherwise dispose of something. It was  applied to assets such as gold and silver bullion,  that was shares and property. According to the Indian Income Tax Act, selling physical gold incurs a tax of 20%, along with a 4% cess on long-term capital gains (LTCG). Thus, the overall taxable rate on the  gold stands at 20.8%. However, this rate  will not  apply to short-term capital gains.  Let’s debunk some misconceptions about precious metals reporting; it’s not the gold or silver you’re buying or selling that the government wants reported, but rather the cash transactions exceeding $10,000. If you pay in paper money, and it’s over this threshold, that’s when the IRS requires a Form 8300. Like most investments, and discussed in  the article , gold also  has its own income tax implications. However, you can be exempt from income tax on gold by following Section 54EE and Section 54F of the Income Tax Act.