Jaideep Narvekar (Tax)
While mutual funds are proving to be a popular investment vehicle, it is equally important to know their taxation. Income generated by all types of multiasset location funds does not have the same tax rules. ( Multi Asset Allocation Fund )
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A very preliminary question is how the income from investment in mutual funds is taxed; But this question is usually asked by investors regarding debt and equity funds. While mutual funds that fall under the category of equity funds have tax savings, the taxation criteria is different in case of debt funds. Similarly, the case of multiasset allocation funds is different. Because, how much tax will be levied on the income generated by multi-asset allocation funds can be told just by hearing the name of the fund. Earnings of different funds in this category are taxed at different accounts.
Meaning of multiasset allocation
Taxation on Multiasset Allocation Funds is different from other funds. The reason behind this is the different category of these funds. The category of multiasset allocation funds includes equity and debt along with third tier mutual funds like gold and real estate. A multi-asset allocation fund in a mutual fund means investing at least ten percent in three asset classes (equity, debt and gold or real estate). Thirty percent investment is mandatory and the remaining fund allocation is done by the fund manager on his own account.
Taxation on Account of Fund Allocation
The concept of multiasset allocation fund is very clear. The asset allocation of different funds in this category is also different. Due to these reasons taxation is not equal for all. If the equity allocation of a fund is more than 65 per cent, the taxation on it is similar to that of equity funds. That is, if you keep such funds for more than three years, you will get tax relief under Section 80C of Income Tax. Also, if the unit is sold after three years and the profit is up to one lakh during a financial year, no tax is payable on it. After three years after selling the unit, if the profit is more than one lakh in one year, long term capital gains at the rate of 10% will have to be paid on it. If you hold the unit for a period of one to three years, you will have to pay short-term capital gains at the rate of 15 percent on the profit earned on it. If the mutual fund is held for less than one year, tax will be payable as per the slab.
Taxation on equity allocation below 65 percent
If the equity allocation of a multiasset allocation fund is more than 35 per cent and less than 65 per cent, the investors will not get benefit under 80C. If you keep such funds for more than three years and then sell them, you will have to pay tax at the rate of twenty percent on the profit. If you sell such a fund within three years and make a profit, you will have to pay tax on it as per income tax slab. At the same time, if the equity allocation of multi-asset allocation funds is less than 35 per cent, they will always have to pay tax on its sale as per income slab calculations.
Multiasset Allocation Allocation of Funds of Funds
Gains on investments made on or after April 1, 2023 in multiasset allocation funds of funds (FoFs) are linked to income and will be taxed as per the slab; But if investment in fund of funds is made before April 1, 2023 and is held for up to three years and then sold, the profit will be taxed at the rate of 20 per cent excluding indecision benefit. The profit from its sale within three years will be added to the income and income tax will be levied as per the slab. ( Multi Asset Allocation Fund )
