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Union Budget 2024 introduces changes that emphasise long-term investment while simplifying the tax structure for mutual funds. For long-term investors, the raised exemption limit provides some relief, ensuring that small investors continue to benefit. Short-term investors, however, need to re-evaluate their strategies to optimise their tax liabilities read more
 "This is how your mutual fund investments, monthly SIPs will be affected")
Union Budget 2024 has made changes in the way that mutual fund investments are taxed. Pixabay
The 2024 Budget, presented by Finance Minister Nirmala Sitharaman, introduces several tax changes that will impact mutual fund investments and Systematic Investment Plans (SIPs). These changes aim to simplify the tax structure, enhance compliance, and promote long-term investment strategies. Here’s a detailed look at how these changes will affect your investments.
Equity mutual funds
Equity mutual funds remain one of the preferred routes for Indian investors to gain exposure to the stock markets. Monthly SIP investments have consistently surpassed the Rs 20,000-crore mark since April 2024.
Tax implications
Short-term Capital Gains (STCG): Equity mutual funds held for less than 12 months will attract a tax rate of 20 per cent.
Long-term Capital Gains (LTCG): Equity mutual funds held for more than 12 months will attract a tax rate of 12.5 per cent.
These changes, effective from July 23, 2024, imply that long-term equity investors will see a marginal increase in LTCG tax from 10 per cent to 12.5 per cent. However, with the exemption limit for capital gains raised to Rs 1.25 lakh, small investors are set to benefit, mitigating the impact of higher taxes. Conversely, short-term investors will face a higher tax burden with the STCG rate increasing from 15 per cent to 20 per cent.
Debt mutual funds
Debt mutual funds, which invest primarily in fixed-income securities like bonds and treasury bills, will continue to be taxed at applicable rates irrespective of the holding period.
Tax Implications
Investments in debt mutual funds will attract tax on capital gains as per the investor’s income tax slab, accordign to Moneycontrol.
Systematic investment plans (SIPs)
Each installment in an SIP is treated as a separate investment for tax purposes. For instance, if you invest Rs 10,000 per month in an equity mutual fund through SIPs, each installment will be considered individually to determine the holding period and the applicable tax rate.
Tax Implications:
Long-term SIP investments: Investors might pay slightly higher taxes due to the increase in LTCG from 10 per cent to 12.5 per cent.
Short-term SIP investments: The increase in STCG from 15 per cent to 20 per cent will affect short-term equity investors, leading to higher taxes.
International mutual funds, gold funds/ETFs, and fund of funds (FoFs)
These funds will be taxed similarly to domestic debt or fixed-income funds. The same applicable tax rates will continue, ensuring no new changes for these investments.
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