Equity oriented mutual funds are those mutual funds which invest more than 65% of their funds in equities. Dividend income received from such mutual funds is exempt from tax for domestic investors. If an investor sells their equity oriented mutual funds then any capital gains on those is also not taxable. But to qualify for this exemption the investor should have sold the mutual funds one year after its purchase.Â However Securities Transaction Tax (STT) should be paid on equity oriented mutual funds at 0.25% when the units are sold back to the mutual fund.
For funds other than equity oriented funds the tax of dividend is zero, but long term capital gains i.e. gains on mutual funds sold after a period of one year are taxed at either 10 or 20% depending on whether indexation has been used or not.Â