Tax on Mutual Funds in India

There are three types of taxes you directly or indirectly pay when you invest in Mutual Funds.

1. Tax to be paid by the investor

Type of Fund	Tax if redeemed WITHIN 1 year	Tax if redeemed AFTER 1 year
Equity Funds (with over 65% investment in equities)	10%	Tax-Free
All other funds	As per normal income tax rate applicable (the profits you earn are clubbed with your income)	10% or 20% (with indexation benefit)

2. Dividend Distribution Tax or DDT (Deducted at Source by Mutual Fund Company)

Though the dividend received by the investor from any mutual fund is tax free, a DDT (Dividend Distribution Tax) is deducted at source as per the following rate.

Type of Fund	Dividend Distribution Tax on Dividends
Equity Funds (with over 65% investment in equities)	0% (No Tax)
MIPs and Debt Funds	12.5%
Cash Funds and Floater Funds	25%

3. Securities Transaction Tax or STT (Deducted at Source by Mutual Fund Company)

When you redeem your Mutual Fund Units, a STT is charged according to the type of investment.