Taxation of Emerging Market Funds
Taxation plays a role, in the world of investing. Investors need to understand the tax implications related to Emerging Market Funds in India. The taxation of these funds can vary depending on how you hold them and the type of gains involved,
1. Short-Term Capital Gains (STCG): If an investor holds units of an Emerging Market Fund for more than a year and sells them any profits made are considered short-term capital gains. In India, these gains are taxed at the individual income tax slab rate.
2. Long-Term Capital Gains (LTCG): If you hold onto your units for more than a year any profits made fall under long-term capital gains. As per tax regulations long-term capital gains from equity-oriented funds like Emerging Market Funds are subject to a 10% tax rate without indexation benefits provided that the profits exceed INR 1 lakh in a financial year.
3. Tax Deduction at Source (TDS): Investors should be mindful of TDS implications on their gains from Emerging Market Funds. If your long-term capital gains exceed INR 1 lakh TDS is applicable at a rate of 10%. However, investors can avoid TDS by providing documents such as PAN details, to the fund house.
4. Indexation Benefits: Indexation advantages are not applicable, to funds that focus on equities. However, they can be beneficial, for debt-oriented Emerging Market Funds. Indexation enables investors to adjust the purchase price of units based on inflation which helps reduce capital gains and in turn lowers the tax liability.