Snapshot of Tax rates specific to Mutual Funds
Income Tax implications on income in respect of units of Mutual Funds.
The Finance Bill, 2020 proposes to abolish dividend distribution tax and resort to classical system of taxing income from MF in the hands of investors.
** Base tax rate is required to be further increased by surcharge at the following rates-
Further, ‘Health and Education Cess’ is to be levied at 4% on aggregate of base tax and surcharge.
• LongTermCapitalGains(unitsheldformorethan12months) •ShortTermCapitalGains(unitsheldfor12monthsorless)
Long Term Capital Gains (units held for more than 36 months) • Short Term Capital Gains (units held for 36 months or less)
# Short term/long term capital gain tax (along with applicable surcharge and education cess) will be deducted at the time of redemption of units in case of NRI investors only. Finance Bill, 2020 proposes withholding tax of 20% on any income in respect of units of MF in case of non-residents as per section 196A of the Act. Based on language of the section, it seems that apart from any income distributed to NRI investors, WHT at 20% may be applicable on capital gains notwithstanding that such capital gains are taxable at a rate lower than 20%.
! The Finance bill, 2020 proposes to insert new section i.e.194 K which provides for with holding tax at 10% on any income in respect of units of MF in case of residents.
However, press release was issued on 4th Feb.2020, to clarify that WHT at 10% stated above is applicable only on dividend and not on capital gains. &After providing indexation.
^ Assuming the investor falls into highest tax bracket.
^^ If total turnover or gross receipts during the financial year 2018-19 does not exceed ` 400 crores.
## Tax at 10% (without indexation) will be charged on capital gain exceeding ` 1 lakh provided that transfer of such units is subject to STT.
^^^ This lower rate is optional and subject to fulfillment of certain conditions as provided in section 115BAA.
^^^^ This lower rate is optional for companies engaged in manufacturing business (set-up and registered on or after 1st October 2019) subject to fulfillment of certain conditions as provided in section 115BAB.
Health and Education cess @4% would apply on aggregate of tax and surcharge.
Transfer of units upon consolidation of mutual fund schemes of two or more schemes of equity oriented fund or two or more schemes of a fund other than equity oriented fund in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains.
Transfer of units upon consolidation of plans within mutual fund schemes in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains.
Bonus Stripping: The loss due to sale of original units in the schemes, where bonus units are issued, will not be available for set off; if original units are: (A) bought within three months prior to the record date fixed for allotment of bonus units; and (B) sold within nine months after the record date fixed for allotment of bonus units. However, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such unsold bonus units.
For Individuals, Hindu Undivided Family, Association of Persons, Body of Individuals and Artificial juridical persons
Specified income-Total income excluding income under the provisions of section 111 A and 112 A of the income tax act (i.e. equity CG)
The Finance Bill, 2020 has proposed optional new tax regime:
For adopting, Option 2, most of deductions/exemptions such as sections 80C/80D etc. are to be forgone. The aforesaid tax regime is optional
Individuals/HUFs have the option to be taxed under either of the options. Option 2 once exercised can be changed in subsequent years (not applicable for business income).
STT is levied on the value of taxable securities transactions as under.
mutual fund (non-delivery based)
*with effect from 1 June, 2016
or Government of India (not being interest referred to in section 194LB or section 194LC)
30% non corporate)
(aged above 60 years but below 80 years)
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.