Hybrid funds that invest more than 65% of their corpuses in equity instruments are taxed as equity funds and those with an asset allocation of less than 65% in equity are treated as debt funds for the purpose of taxation.
If an investor sells his holdings in an equity mutual fund before a year then a flat rate of 15% STCG tax (short term capital gain) is applicable.
In case the investor sells his mutual fund units after a year then LTCG (long term capital gain) tax is applicable. As per LTCG tax, gains of over Rs.1 lakh in a financial year are taxed at 10%.
In case the debt mutual funds are sold before completion of three years of holding, returns are added to the total income and regular income tax as per the applicable tax slab gets applied.
If the debt mutual fund is sold after three years, then returns are treated as long-term capital gains and are taxed at a rate of 20% after indexation plus cess @3%.