Capital Gain on ETF in India

Exchange Traded Funds (ETFs)

ETF is a pool of securities in a single Basket and when you buy one ETF then all these securities automatically become part of your portfolio and they just replicate the returns offered by its constituent securities. They are very much similar with the Mutual funds, the only difference which is there is that you can buy and sell an ETF on stock exchange just like a stock and comes with lower expense ratio. ETFs were first launched in 2002 in India. If you are buying and selling ETF it becomes very important that you know each & everything about ETF and Taxation of ETFs.

Types of ETF

  • Index ETF – Track Index like SENSEX or NIFTY
  • Sectoral ETF – Track a specific sector.
  • Gold ETF – Track market price of Gold
  • International ETF – Invests in International funds

When a person buy and sell an ETF, the profit so arise becomes part of his total income and is taxed under the head “Income from Capital Gains.”

Short Term/Long Term Capital Assets

Assets are considered short-term capital assets when these are held for 12 months or less which are :

  • Equity/Preference shares of a recognized Indian stock exchange.
  • Securities listed on recognized Indian stock exchange.
  • Equity Oriented ETF/Index ETF/Sectoral ETF
  • Units of UTI
  • Units of Equity oriented fund
  • Zero coupon Bonds

When the above-listed assets are held for a period of more than 12 months, they are considered as long-term capital asset.

  • In case of Debt/Gold/International ETF : If held for a period of more than 36 month will be treated as Long term Capital asset and Less than 36 month as Short Term Capital Asset.

Taxation of Index/Sectoral/Equity Oriented ETF (Simple Chart)

Tax ApplicableIndexation AllowedRate of Tax Applicable
Long Term Capital GainNo10% on Income over Rs. 1 Lakh
(NIL tax on Income below Rs. 1 Lakh)
Short Term Capital GainNo15%

Long term capital gain on ETF (Equity Oriented)

Equity oriented ETF will be eligible for concessional rate of 10% long-term capital gains (LTCG) tax.

In the 2018-19 budget, the government had introduced concessional 10% on LTCG exceeding ₹ 1 lakh on ETF, subject to payment of Securities Transaction Tax (STT) at the time of acquisition.

Prior to April’18, the LTCG tax was nil for shares sold after 1 year of purchase.

Taxation of Debt/Gold/International ETF (Simple Chart)

Tax ApplicableIndexation AllowedRate of Tax Applicable
Long Term Capital GainYes20%
Short Term Capital GainNoAs per Income Slab
(Eg : If you fall under 30% tax slab than 30%
or if you fall under 5% tax slab than 5%

Also Read :

Capital Gains on IPO (Initial Public Offerings), Bonus issue and LTCG on IPO

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