Taxation and Investments

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Tax Implications on Mutual Funds


There are taxes on Mutual Funds imposed by the Income Tax Department.  Investors should be aware of these taxes as it affects the return of their investments.

What are Equity Scheme and Debt Scheme?

A Mutual Fund scheme which holds its investments in Equity more than 65% of total investments is categorized as Equity Scheme.  Other schemes are called Debt Schemes.

Short Term Capital Gain:  Gain arises from the sale of Units held less than 1 year or 365 days

Long Term Capital Gain: Gain arises from the sale of Units held more than 1 year or 365 days

What is Dividend Distribution Tax (DDT)?

Whenever a Mutual Fund declares Dividend, it has to pay Dividend Distribution Tax (DDT) on the dividend declared.  This will be paid by Mutual Funds, not by investors.  However when the funds pays off the tax, it will automatically decrease the value of NAV.

What is Securities Transaction Tax (STT)?

In order to avoid the non-payment of tax on capital gains, the government introduced Securities Transaction Tax (STT).  It is charged whenever you buy or sell units of the Mutual Funds.

The following Table will help you to understand the Taxes on Mutual Funds.


Equity Schemes

Debt Schemes

Security Transaction Tax (STT)
Applicable

N.A.

Long Term Capital Gain
Exempted

10% + Surcharge + Cess (without Indexation)
20% + Surcharge + Cess (with Indexation)

Short Term Capital Gain
15% + Surcharge + Cess

As per Tax Slab of Investors


Dividend Distribution Tax

Dividends are exempted

25% + Surcharge + Cess (for individuals)


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