Will gains from Parag Parikh Dynamic Asset Allocation Fund be taxed as per slab?

In response to our article – Parag Parikh Dynamic Asset Allocation Fund: Who should invest? – many readers are not clear about the taxation status of the fund. Some even claim that it will be taxed as per slab. In this article, we explain the fund’s taxation status.

Note: Tax rules change often. The rules mentioned here are valid as of Feb 2024 (at the time of writing). If you read this article later, please check the existing tax rules.

Mutual funds and ETFs can be taxed in three different ways following the amendment to the finance bill 2023, announced in March 2023.

Taxation status from 1st April 2023

• Funds holding 65% or more of Indian equity or Indian equity ETFs are equity funds. Short-term capital gains from units aged one year or less will be taxed at 15% with cess. Gains from older units are tax-free up to Rs. one lakh. Above this, they will be taxed at 10% without indexation.
• Funds holdings less than 65% Indian equity but more than 35% Indian equity are non-equity funds (we will refer to these as class I). Gains from units purchased on or before 3Y are short-term gains and taxed as per slab, and gains from older units are taxed at 20% with indexation.
• Funds holding less than or equal to 35% equity will be taxed as per slab, regardless of the age of the unit. Let us call these class II non-equity funds. This will only apply to fresh purchases made from 1st April 2023.

Parag Parikh Conservative Hybrid Fund is a class II non-equity fund. So, its gains will always be taxed as per slab.

Parag Parikh Dynamic Asset Allocation Fund is a class I non-equity fund. It will use direct equity and arbitrage positions to maintain equity allocation greater than 35% but less than 65%. So, its long-term gains will be subject to 20% tax with indexation.