Tax reckoner 2024-25: Snapshot of income tax rates specific to Mutual Funds

Finance Minister Nirmala Sitharaman has introduced significant changes to the taxation of mutual fund investments in the Union Budget 2024-25. Here is a snapshot of the tax structure for mutual funds for FY24 as per Tata Mutual Fund. 

Withholding Tax on Mutual Fund Income

• Resident Investors: The withholding tax rate on mutual fund income for resident individuals has been set at 10%. However, if the annual income from mutual funds exceeds Rs. 5,000, the tax is applicable.
• Non-Resident Investors (NRIs): NRIs will be subject to a withholding tax of 20% or the rate specified in applicable tax treaties, whichever is lower.

Withholding Tax (TDS) is a portion of your income that is deducted at source by the payer before it is paid to you. In the context of mutual funds, the Asset Management Company (AMC) is responsible for deducting TDS on certain income components.   

 

Surcharge on Mutual Fund Income

A surcharge will be levied on the base tax based on the investor's income:

• 37% for income exceeding Rs 5 crore
• 25% for income exceeding Rs 2 crore but not exceeding Rs 5 crore
• 15% for income exceeding Rs 1 crore but not exceeding Rs 2 crore
• 10% for income exceeding Rs 50 lakh but not exceeding Rs 1 crore

However, if an investor opts for the new tax regime, the surcharge rate will not exceed 25%.

Health and Education Cess

An additional 4% health and education cess will be levied on the combined amount of base tax and surcharge.

Note 1 - Capital gains from transfer of units of “specified mutual fund schemes” acquired on or after 1st April 2023 are treated as short term capital gains taxable at applicable slab rates as provided above

irrespective of the period of holding of such mutual fund units. For this purpose, “specified mutual fund” means mutual fund where not more than 35 per cent of its total proceeds is invested in the equity

shares of domestic companies.The definition of the “specified mutual fund” is proposed to be amended from FY 2025-26 as (a) Mutual fund which invests more than 65 per cent of its total proceeds in debt

and money market instruments; or (b) a fund which invests 65 per cent or more of its total proceeds in units of a fund referred to in above sub-clause (a)

* Income-tax at the rate of 10%/12.5% (without indexation benefit and foreign exchange fluctuation) to be levied on long-term capital gains exceeding Rs. 1.25 lakh provided transfer of such units is

subject to Securities Transaction Tax (‘STT’). $ Surcharge to be levied at:

• 37% on base tax where specified income** exceeds Rs. 5 crore;

• 25% where specified income** exceeds Rs. 2 crore but does not exceed Rs. 5 crore;

• 15% where total income exceeds Rs. 1 crore but does not exceed Rs. 2 crore; and

• 10% where total income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore.

In case total income includes income by way of dividend on shares and short-term capital gains on units of equity oriented mutual fund schemes and long-term capital gains on mutual fund

schemes, the rate of surcharge on the said type of income not to exceed 15%. In case investor is opting for ‘New Regime’ as mentioned on page 3, the rate of surcharge not to exceed 25%.

** Specified income – Total income excluding income by way of dividend on shares and short-term capital gains on units of equity oriented mutual fund schemes and long-term capital gains on mutual

fund schemes.

Further, Health and Education Cess to be levied at the rate of 4% on aggregate of base tax and surcharge.

**** For gains on transfer/redemption on or after 23 July 2024. For determining nature of gains (i.e. long term or short term) on mutual fund unit listed on recognized stock exchange in India, period of

holding of 12 months is proposed to be considered. @ Surcharge at 7% on base tax is applicable where total income of domestic corporate unit holders exceeds Rs 1 crore but does not exceed 10 crores and at 12% where total income exceeds 10

crores. However, surcharge at flat rate of 10 percent to be levied on base tax for the companies opting for lower rate of tax of 22%/15%. Further, “Health and Education Cess” to be levied at the

rate of 4% on aggregate of base tax and surcharge. # Short term/ long term capital gain tax (along with applicable Surcharge and Health and Education Cess) will be deducted at the time of redemption of units in case of NRI investors. Tax treaty benefit

can be claimed for withholding tax on capital gains subject to fulfillment of stipulated conditions. & After providing indexation.

*** Without indexation. ^ Assuming the investor falls into highest tax bracket. ^^ If total turnover or gross receipts in the financial year 2022-23 does not exceed Rs. 400 crores. ^^^ This lower rate is optional and subject to fulfillment of certain conditions as provided in section 115BAA. ^^^^ This lower rate is optional for companies engaged in manufacturing business (set-up & registered on or after 1 October 2019) subject to fulfillment of certain conditions as provided in section

115BAB