Returns on Equity Mutual Funds attract short term capital gains of 15% on SIP / Lump sum, if the investment is redeemed within 12 months. After one year, the returns attract 10% long term capital gain tax.
For eg., you invested Rs. 24,000 as a one time investment. The profit on Rs. 24000 is Rs. 2500. So you will be taxed 15% of Rs. 2500, if you withdraw the investment within a year. However, if the amount stays invested over 12 months, there is 10% tax on profit. In case of SIP, one year of investment is counted from the date of SIP. So, if Rs. 2000 is invested on 15 May 2016, the short term capital gains from it are taxed at 15% if withdrawn before 15 May 2017.
Returns on Debt funds, if redeemed within three years, are added to one's income and taxed as per the applicable income tax slab. After three years, the long-term capital gains from debt funds are taxed at 20% after indexation. For eg. You purchased a debt fund in 2011-12 for Rs. 20 lacs. It currently values Rs.32 lacs. Then Gain would be = Rs 32 lacs – 20 lacs = Rs 12 lacs. But, if Cost Inflation Index (CII) is considered then we need to calculate cost of Rs. 20 lacs of 2011-12 in the year 2014-15. According to CII, Inflation index in year 2011-12 was 785 and in year 2014-2015 was 1024. So, Indexed cost of Rs 20 lacs in the year 2014-2015 is = 20 * (1024/785) = 26.09. Therefore, Long term capital gain = 32-26.09 = Rs. 5.91 lacs instead of Rs 12 lacs. So the tax is 20% of 5.91 lacs i.e. 1.18 lacs.
Moreover, a 12% surcharge and 3% cess is applied to short term capital gains from equity and to long term capital gains debt funds.