Last Updated on July 24, 2024 at 9:43 am
Budget 2024 has proposed a Big change in mutual fund taxation rules, as explained in our earlier report. This article explains how fund of funds (FoFs) will be taxed from 23rd July 2024.
Note: This is based on our understanding of budget documents. Errors, if any, will be updated when they come to our attention.
There are now three types of mutual funds: (1) Equity MF (65% or more domestic equity),(2) Debt MF (65% or more bonds). (3) Other MF (neither 65% equity nor 65% bonds).
Equity FOF: A fund of fund will be classified as an equity fund if it invests 90% of its assets in funds that, in turn, invest 90% of its assets in domestic equity (so essentially equity ETFs or index funds).
New rule: long-term capital gains exceeding one lakh twenty-five thousand rupees will be taxed at 12.5% for redemptions made on or after 23rd July 2024. Holding Period 1Y and above.
New Rule: short-term capital gains will be taxed at 20% for redemptions made on or after 23rd July 2024. Holding Period less than 1Y.
Debt FOF: A fund of fund will be classified as an debt fund if it invests minimum 65% of its assets in funds that, in turn, invests minimum 65% of its assets in debt and money market instruments
Taxation: All gains are taxed as per slab regardless of duration.
Other FOF: A fund of fund that can neither be classified as an equity FOF or a debt FOF.
New rule: long-term capital gains will be taxed at 12.5% without indexation for redemptions made on or after 23rd July 2024. Holding Period 2Y and above.
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