Taxation on Mutual Funds and its Schemes/Funds
Mutual funds does not pay any tax on the income it earns with investments, while income in the hand of investor many be taxable or exempted from tax according to nature of investment and period of holding. Investors earn from mutual funds either in the form of dividend or capital gain/loss.
In case whether investor earns dividends, income in investor hand will be exempted from tax. While in case whether investors earn in form of capital gain, it may be either taxable or tax-free depending on holding period. Capital gain/loss arises by sale of units. Capital gain/loss are of two types depending on period of holding of units.
1. Short Term Capital Gain or Loss (STCG/STCL)
If investor sales units within a period of 1 year in case of equity funds and 3 years in case of non equity funds, short term capital gain/loss arises.
2. Long Term Capital Gain or Loss (STCG/STCL)
If investor sales units after a period of 1 year in case of equity funds and 3 years in case of non equity funds, long term capital gain/loss arises.
Long term capital gain is tax free in case of equity oriented funds, however it is taxable in case of non-equity funds. In case of non-equity funds indexation benefits are available.
Indexed cost of an asset = Cost of purchase * (Index in year of sale / Index in year of Purchase)
To know how to calculate capital gain Click Here
Dividend Distribution Tax (DDT) Dividend income is not taxable in the hand of investor, because it is distributed to investor after paying dividend distribution tax. Dividend distribution tax applies only on non-equity oriented schemes.
Note :
1. Equity oriented schemes are that in which at least 65% of assets are in equity oriented.
2. Mutual funds are not subject to wealth tax
Tax on various Mutual Fund schemes (Capital Gains Taxation)
| Sr.No | Type of Income | Holding Period | Tax Provision (Individual/HUF) | Tax Provision (Company) |
|---|---|---|---|---|
| 1 | Dividend | Any Time | Tax Free | Tax Free |
| 2 | Return on Equity Schemes | Period greater than 1 year | Tax Free (LTCG) | Tax Free (LTCG) |
| 3 | Return on Equity Schemes | Priod less than 1 year | Tax @15% (STCG) | Tax @15% (STCG) |
| 4 | Debt/Liquid Funds | Less than 3 Years | Tax as per investor tax slab (STCG) | 30% (STCG) |
| 5 | Debt/Liquid Funds | Greater than 3 Years | 20% with indexation (LTCG) | 20% with indexation (LTCG) |
Securities Transaction Tax (STT)
On Equity Oriented Schemes of Mutual Funds
| On purchase of equity shares in stock exchange | 0.1% |
| On sale of equity shares in stock exchange | 0.1% |
| On sale of futures in stock exchange | 0.01% |
| On sale of options in stock exchange | 0.05% |
On investors in Equity Oriented Schemes of Mutual Funds
| On purchase of units in stock exchange | Nil |
| On sale of units in stock exchange | 0.001% |
| On re-purchase of units by fund | 0.001% |
Know about Mutual Funds | जानिए म्यूचुअल फण्ड के बारे में