Are the recent changes to MF taxation confusing you?

The 2024 Union Budget has introduced significant changes to the taxation of mutual funds (MFs), aimed at simplification of taxation laws.

Some mutual fund categories have seen significant changes. Here’s a breakdown to help you navigate and make the most of these updates.

Please note: Below given information is for general purposes only in a simple manner. In view of the individual nature of the tax consequences, each investor is advised to consult his/ her own professional tax advisor. The information given here is w.e.f. July 23, 2024 and is neither a complete disclosure of every material fact of Income-tax Act 1961, nor does it constitute tax or legal advice. Tax rates unless specified are excluding surcharges and health & education cess as applicable.

Commodity ETFs, Commodity Funds-of-Funds and Other Funds of Funds (with <65% in Debt) Benefit from Simplified Taxation

For Units purchased on or after 1 April 2023

For Units purchased before 1 April 2023

What does this mean for you?

• For taking exposure to commodities, both ETFs and FOFs now have more favourable tax treatment for redemptions from 1 April, 2025 what they faced earlier.
• In fact, with 1 year holding period, Gold and Silver ETFs have a better taxation structure than holding physical gold, adding to various reasons to own it in a financial way vs a physical way, such as convenience, safety, Purity, Liquidity and Lower Costs. Refer our detailed presentation on Commodity Funds to know more.

Equity Mutual Funds still remain attractive from tax perspective

What does this mean for you?

While tax rates have gone up, higher exemption amount has been allowed under LTCG.

Debt Mutual Funds continue to be taxed on slab rates

For Debt Funds purchased on or after 1 April 2023

For Debt Funds purchased before 1 April 2023

What does this mean for you?

• While much doesn't change for investments into debt mutual funds, they remain an attractive way to take exposure to debt as an asset class on account of professional management, varied investment options and marked to market nature of valuation.
• For existing investments, the change in long term capital gains i.e. removal of indexation benefits will likely increase the tax outgo.

These changes aim to simplify the tax structure as common LTCG rates are now being used across various asset classes. They may require investors to reassess their strategies. Consulting a financial advisor can help you navigate these new rules effectively. Please refer Tax Reckoner published by HDFC MF at this link. An extract from the same for Capital Gains is reproduced on the next page.

Extract of HDFC MF Tax reckoner

Notes:

Disclaimer:

The information set out in this document is for general purposes only and is not an offer to sell or a solicitation to buy/sell any units of schemes of mutual fund. The information set out is neither a complete disclosure of every material fact of the Income-tax Act, 1961 nor does it constitute tax or legal advice. Investors should be aware that the fiscal rules/ tax laws may change and there can be no guarantee that the current tax position may continue indefinitely. In view of the individual nature of the tax consequences, each investor is advised to consult his/ her own professional tax advisor. The information/ data herein alone is not sufficient and shouldn't be used for the development or implementation of an investment strategy and should not be construed as investment advice. Investors alone shall be fully responsible / liable for any decision taken on the basis of this document. Neither HDFC Mutual Fund nor HDFC Asset Management Company Limited nor any person connected with it accepts any liability arising from the use of this information. The investors should before investing in the Scheme(s) of HDFC Mutual Fund make his/their own investigation and seek appropriate professional advice.

Glossary:

• FOFs - Fund of Funds
• ETFs - Exchange Traded Fund
• LTCG - Long Term Capital Gains
• STCG - Short Term Capital Gains

Release date: 13th September 2024

MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.