Ch.8 · Capital Gains Tax on Mutual Funds · medium
What is the 'effective tax rate' on equity fund LTCG for an individual investor with ₹2 lakh LTCG in a financial year?
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EXPLANATION
LTCG on equity funds: the first ₹1.25 lakh of annual LTCG is exempt. On the remaining ₹75,000 (₹2 lakh - ₹1.25 lakh), 12.5% tax = ₹9,375. Adding 4% cess: ₹9,375 × 1.04 = ₹9,750 effective tax. This tax-efficient treatment makes equity mutual funds attractive for long-term wealth creation compared to FDs where the full ₹2 lakh income would be taxed at slab rate (potentially ₹60,000+ for a 30% bracket investor).
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