There’s no doubt about the fact that investing in mutual funds are a great way to enhance your wealth. Moreover, the various tax benefits offered by equity-based mutual funds make it one of the most attractive investments for long term. Here’s a detailed overview of the various tax benefits offered by mutual funds.
Tax benefits under the Section 80 C
ELSS mutual funds are eligible for tax deductions under the section 80C of the Income Tax Act. These equity-based mutual funds, invest a major portion of the corpus into the stock market and give returns based on the market performance. The amount invested in equity mutual funds can be claimed as a deduction under the section 80C. While there are no limits on the amount that can be invested in ELSS mutual funds, the tax deductions that can be claimed is subjected to a total 80C limit of Rs. 1,50,000 in a financial year. ELSS mutual funds have minimum lock-in period of 3 years.
Tax benefits on mutual fund dividends
Equity mutual funds pay out dividends to the investors based on realized profit in the fund. The amount received as a dividend from equity mutual funds is taxed @10% plus applicable surcharges for FY 2019-20.
Tax benefits on long-term capital gains from mutual funds
The value of a mutual fund is judged by its NAV. The NAV fluctuates on a daily basis based on performance of the mutual fund in stock market. Hence, mutual funds are always purchased and sold at its prevailing NAV The capital gains resulting from the sale of equity mutual funds after 365 days are treated as long term capital gains The long term capital gain tax in equity mutual funds is 10% plus applicable surcharges for FY 2019-20.
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