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INCOME FROM MUTUAL FUNDS

INCOME FROM MUTUAL FUNDS

Income from MFs could take two forms—dividends and capital gains,
The entire income received in respect of units of a Mutual Fund, registered with the Securities & Exchange Board of India, will be exempt from income-tax in accordance with the provisions of Section 10(23D) of the Income-tax Act, 1961.
Basically there are two types of mutual fund
  1. Equity mutual funds: – under this 65% of the fund is invested in equity.
  2. Debt mutual funds: under this major investment is in debt related instruments
  • Equity Funds are considered Short Term Capital Assets when held for 12 months or less.
  • Debt Funds are considered Short Term Capital Assets when held for 36 months or less.
Taxation of Fund
Equity Funds
– Short term capital gains on Equity Funds are taxed @ 15% (irrespective of your tax slab) provided such transaction of sale is chargeable to STT, (i.e., the transfer of such units should be made through a recognised stock exchange in India)
Long Term Capital Gains on Equity Funds are not taxable. :– As per Section 10(38), any long-term capital gains arising from the sale of a unit of an equity oriented fund provided such transaction of sale is chargeable to STT, (i.e., the transfer of such units should be made through a recognised stock exchange in India) shall be exempt from tax.
  • If a transaction is not covered by STT, the long-term capital gain tax rate would be 10% without indexation or 20% with indexation,
  • If a transaction is not covered by STT Short-term capital gains on such transactions are taxable at normal rates.
Debt Funds
– Short term gains on debt funds are added to your total income and taxed as per the slabs applicable to you.
– Long term gains on debt funds effective 11th July are taxed @ 20% with indexation. Any long term gains on debt funds up to 10th July are taxed at 10% without indexation or 20% with indexation whichever is lower.
Note: surcharge and cess will be also applicable, on your total tax payable.
“Short-term capital asset” means a capital asset held by an assessee for 36 months or less immediately preceding the date of its transfer. However for the following assets, the holding period shall be of 12 months or less to qualify as “Short-term capital asset”;
  1. a security (other than a unit) listed in a recognized stock exchange in India
  2. a unit of the Unit Trust of India established under the Unit Trust of India Act
  3. a unit of an equity oriented fund]
  4. a zero coupon bond

INCOME FROM MUTUAL FUNDS

RULES UNDER COMPANIES ACT 2013

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