Taxation of Index Funds
In India, index funds are subject to taxation based on the holding period and type of income,
1. Short-term Capital Gains (STCG): If you hold index fund units for less than one year, any profits are treated as short-term capital gains and taxed at your applicable income tax rate.
2. Long-term Capital Gains (LTCG): If you hold index fund units for more than one year, the gains are considered long-term capital gains. As of my knowledge cutoff in September 2021, LTCG on equity-oriented funds like index funds were taxed at 10% without indexation benefits.
3. Dividend Distribution Tax (DDT): Index funds may declare dividends, and until my last update in September 2021, DDT was applicable at the fund level. However, this tax structure may have changed, so it is crucial to check the current tax laws.