What's changed?
The definition of specified mutual funds, which changes a lot. Previously, a specified mutual was one which invested less than 35% of its total assets in equity instruments. This meant an taxation ambiguity for ETFs (exchange traded funds), funds of funds and gold mutual funds, where the primary investment wasn't in debt securities, but another asset class like gold. However, since their investments in equities remained below 35%, they were clubbed with specified mutual funds, and taxed accordingly.Now, the budget has changed the definition of a specified mutual funds. From now on, any fund which invests more than 65% of its total proceeds in debt instruments would be classified as a specified mutual fund, and will be taxed as per the investor's income tax slab. But other categories, like Funds of Funds (FoF), gold mutual funds and ETFs will not be a part of these specified funds, and will be charged LTCG and STCG per the new tax norms.
Units of gold mutual funds, FoF and other ETFs will be eligible for LTCG if they are held for a period of more than 24 months, and will be taxed at 12.5% sans indexation benefits. As for STCG on them, the requirement is that you sould have held units of these funds for less than 24 months. In this case, you will be charged 20% short-term
Here's a handy reckoner for you to check which asset class will be charged LTCG and STCG going ahead:
How will your SIP investments be impacted on withdrawal?
Buckle up, long-term investors! This is where the ride is about to get a little complicated, and tough.Say you start investing Rs 30,000 per month in SIPs from January this year, all of which goes in equity mutual funds. You're a dedicated, patient investor, but you need to fund a medical emergency, so you withdraw all the funds you've invested between January and July (just 6 months0, which is about Rs 2,10,000, which are now valued at Rs 2,60,000. With your capital gains at Rs 50,000, here's how you will be charged STCG tax.
Come next year, and you decide you want to go on a solo trip across Europe. You check your investments, and you have Rs 5,40,000 accumulated till July 2025, which have now grown to Rs 9,00,000. Since over one year has passed, their withdrawal will be subject to long-term capital gains. Per new announcement, here's how your funds will be taxed:
In case of debt funds, both long and short term capital gains will be taxed as per the investor's income tax slab. So, irrespective of your capital gains, you will be charged basis the tax regime you choose, and the applicable tax slab.