Union Budget 2024: During her budget speech on Tuesday (July23, 2024), Nirmala Sitharaman made two important announcements related to capital gain tax rates that will have a huge impact on the mutual fund earnings of an investor. She increased the long term capital gain tax (LTCG) from 10 per cent to 12.50 per cent and the short term capital gain (STCG) tax from 15 per cent to 20 per cent. There is one relaxation for mutual fund investors with a holding period of more than a year. The exemption limit has been increased from Rs 1 lakh to Rs 1.25 lakh.

Umeshkumar Mehta, CIO, SAMCO Mutual Fund, said: “Mutual Fund investors had a great party time post COVID given the extraordinary returns they have made, so there should be no reason to complain about incremental share of taxes @2.5% from profits going forward. So long as the rates are limited to 12.5% it should be fine, but if this is the beginning of raising the taxes further then investors would not take it well as tax investor-friendly policies. However, increasing short term taxes to 20% will make investors more disciplined towards long-term investing and is good for not only overall financial health of investors but also for the markets”.

Short term capital gain is applied when you hold a mutual fund investment for less than a year, while long term capital gain tax is applied when the holding period is more than a year.

In this write-up, know how much STCG and LTCG you have to pay on capital gains of Rs 5 lakh in an equity mutual fund scheme.

STCG Calculator: Tax on Rs 5 lakh capital gains

Here, we are assuming that you already fall into the income tax bracket and that capital gains from the equity mutual fund are not your only yearly income.

In such a situation, if you earn Rs 5 lakh in a year, you get no tax exemption, and at the rate of 20 per cent, your STCG will be Rs 1 lakh.

Earlier, at 15 per cent, your STCG would have been Rs 75,000. So, you have to pay Rs 25,000 extra now.

LTCG Calculator: Tax on Rs 5 lakh capital gains

Since under the new rules, you get a tax exemption of Rs 1.25 lakh, you will be taxed only on Rs 3.75 lakh.

At the rate of 12.50 per cent, your LTCG will be Rs 46,875.

Under the old LTCG rules, you would have got a Rs 1 lakh exemption.

It means, your taxable income would have been Rs 400,00. At the rate of 10 per cent, your LTCG would have been Rs 40,000.