Taxation
Snapshot of Tax rates specific to Mutual Funds
Tax rates applicable for the Financial Year 2020-21.
Income Tax implications on income in respect of units of Mutual Funds.
Sr. No. | Investor type | Withholding tax rate |
1 | Resident | 10%* |
2 | NRI | 20%** |
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.
- As per section 194K, tax is not deductible if dividend income in respect of units of MF is below`5000/-in a financial
** Base tax rate is required to be further increased by surcharge at the following rates-
- 15% where total income exceeds`1crore but does not exceed`2crores and
- 10%where total income exceeds`50 lakhs but does not exceed`1crore
Further, ‘Health and Education Cess’ is to be levied at 4% on aggregate of base tax and surcharge.
- Finance Act, 2020 has capped maximum surcharge at 15% r.t. WHT on dividends paid to non-resident non-corporate investors (namely individual, HUF, AOP, BOI, artificial judicial personetc.)
Capital Gains Taxation
Individual/HUF! | Domestic Company@! | NRI$# | |
Equity Oriented Schemes
• LongTermCapitalGains(unitsheldformorethan12months) •ShortTermCapitalGains(unitsheldfor12monthsorless) |
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Long Term Capital Gains | 10%## | 10%## | 10%## |
Short Term Capital Gains | 15% | 15% | 15% |
Other Than Equity Oriented Schemes – For the period July 11, 2014 onwards
Long Term Capital Gains (units held for more than 36 months) • Short Term Capital Gains (units held for 36 months or less) |
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Long Term Capital Gains | 20%& | 20%& | Listed – 20%&Unlisted-10%* |
Short Term Capital Gains | 30%^ | 30%/25%^^/22%^^^/15%^^^^ | 30%^ |
Tax Deducted at Source (Applicable only to NRI Investors) | |||
Short term capital gains | Long term capital gains | ||
Equity oriented schemes | 15% | 10% | |
Other than equity oriented schemes | 30%^ | 10%* (for unlisted) 20%&(for listed) |
Sr. No. | Total Income | Applicable surcharge rate | Sr. No. | Particulars | Applicable surchargerate |
1. | Between`1croreto`10Crores | 7% | 1. | Total income upto ` 50 lakhs | No Surcharge |
2. | Above ` 10 Crores | 12% | 2. | Total income between `50 lakhs to `1crore | 10% |
3. | Corporatesoptingforlowertax rates of22%/15% | 10% | 3. | Total income between `1 crore to `2 crores | 15% |
4. | Specifiedincomebetween`2croresto`5Crores | 25% | |||
5. | Specified income above `5 Crores | 37% |
# 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.
1 Individual income tax rate slabs
For Individuals, Hindu Undivided Family, Association of Persons, Body of Individuals and Artificial juridical persons
Option 1
Total Income | Tax Rates |
Up to ` 250,000(a)(b) | NIL |
` 250,001 to ` 500,000(d)(e) | 5% |
` 500,001 to ` 1,000,000(d) | 20% |
` 1,000,001 and above(c)(d) | 30% |
- In the case of a resident individual of the age of 60years or above but below 80years, the basic exemption limit is `300,000.
- In case of a resident individual of age of 80years or above, the basic exemption limit is `500,000.
- Surcharge Applicable in case of Individual/HUF/AOP/BOI/Artificial judicial person:
Sr. No. | Particulars | Applicable surchargerate |
1. | Total income upto ` 50 lakhs | No Surcharge |
2. | Totalincomebetween`50lakhsto`1crore | 10% |
3. | Totalincomebetween`1croreto`2Crores | 15% |
4. | Specifiedincomebetween`2croresto`5Cror | es 25% |
5. | Specified income above ` 5 Crores | 37% |
- The said Health and Education Cess at 4% will apply on aggregate tax and surcharge.
- Finance Bill 2019 has proposed a rebate of actual tax liability or ` 12,500 (which ever is lower) in case of individuals having income not exceeding`5,00,000.
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)
Option 2
The Finance Bill, 2020 has proposed optional new tax regime:
Total Income | Tax Rates |
Upto Rs.2,50,000 | Nil |
Rs.2,50,001 to Rs.5,00,000 | 5% |
Rs.5,00,001 to Rs.7,50,000 | 10% |
Rs.7,50,001 to Rs.10,00,000 | 15% |
Rs.10,00,001 to Rs.12,50,000 | 20% |
Rs.12,50,001 to Rs.15,00,000 | 25% |
From Rs.15,00,001 and above | 30% |
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).
Securities Transaction Tax (STT)
STT is levied on the value of taxable securities transactions as under.
Transaction | Rates | Payable By |
Purchase/Sale of equity shares | 0.1% | Purchaser/Seller |
Purchase of units of equity oriented
mutual fund |
Nil | Purchaser |
Sale of units of equity oriented mutual fund | 0.001% | Seller |
Sale of equity shares, units of equity oriented
mutual fund (non-delivery based) |
0.025% | Seller |
Sale of an option in securities | 0.05%* | Seller |
Sale of an option in securities, where option
is exercised |
0.125% | Purchaser |
Sale of a future in securities | 0.010% | Seller |
Sale of unit of an equity oriented fund to the Mutual Fund | 0.001% | Seller |
Sale of unlisted equity shares and units of business trust under a initial offer | 0.2% | Seller |
*with effect from 1 June, 2016
Special rates for non-residents as per domestic tax law
- The following incomes in the case of non-resident are taxed at special rates on gross basis:
Transaction | Rates(a) |
Dividend | 20% |
Interest received on loans given in foreign currency to Indian concern
or Government of India (not being interest referred to in section 194LB or section 194LC) |
20% |
Income received in respect of units purchased in foreign currency of specifies Mutual Funds/ UTI | 20% |
Royalty or fees for technical services(b) | 10% |
Interest income from a notified Infrastructure Debt Fund specified loan agreement, specified long term bonds, rupee denominated bonds(c) and businesstrust. | 5% |
Interest on FCCB / Dividend on GDRs | 10% |
- In case the non-resident has a Permanent Establishment(PE) in India and the royalty/fees for technical services paid is effectively connected with such PE, the same could be taxed at 40%(plus applicable surcharge and health and education cess) on net basis.
- Interest payable to a non-resident in respect of monies borrowed by any Indian company orbusinesstrustfromasourceoutsideIndiabywayofissueofrupeedenominatedbond during the period 17th September 2018 to 31st March 2019 is exempt from tax.
- Tax on non-resident sportsmen or sports association on specified income @ 20% plus applicable surcharge and health and education cess.
CapitalGains
Transaction | Short Term Capital Gains(a) | Long Term Capital Gains(a)(b) |
Sale transactions of equity shares/unit of an equity oriented fund which attract STT | 15% | 10%* |
Sale transaction other than mentioned above: | ||
Individuals(resident and non-resident) | Progressive slab rates | 20% / 10%(b) |
Partnerships | 30% | |
Resident companies | 30%/25%(d)/22%(e)/15%(f) | |
Overseas financial organisations specified in section 115AB | 40% (corporate)
30% non corporate) |
10% |
FIIs | 30% | 10% |
Other Foreign companies | 40% | 20% / 10%(c) |
Local authority | 30% | 20% / 10% |
Co-operative society rates | Progressive slab or20%(g) | 20% / 10% |
- Long term capital gains exceeding `1 lakh will be taxable ar 10% (without indexation and foreign exchange fluctuation)
- These rates will further increase by applicable surcharge & education cess.
- Income tax rate of 20% with indexation and 10%without indexation.
- Long term capital gains arising to a non-resident from transfer of unlisted securities or shares of a company, not being a company in which the public are substantially interested, subject to 10 per cent tax (without benefit of indexation and foreign currency fluctuation).
- If total turn over or gross receipts of the financial year 2018-19 does not exceed 400 crores.
- The lower rate is optional and subject to fulfillment of certain conditions provided in section115BAA.
- 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 section115BAB.
- The Finance Bill, 2020 proposes new optional tax regime for co-operative societies. Thus, co-operative societies have the option to be taxed at progressive tax rate or 20% subject to fulfillment of certain conditions as provided in section 115BAD.
Resident Individual | Total income | ||||||||
4,90,000 | 8,50,000 | 10,00,000 | 12,00,000 | 15,00,000 | 56,50,000 | 1,11,50,000 | 2,11,50,000 | 5,11,50,000 | |
Tax in FY 2020-21 (Option 1)* | Nil*** | 54,600 | 85,800 | 1,32,600 | 2,26,200 | 16,73,100 | 37,22,550 | 79,46,250 | 2,15,32,290 |
Tax in FY 2020-21 (Option 2)** | Nil*** | 54,600 | 78,000 | 1,19,600 | 1,95,000 | 16,38,780 | 36,86,670 | 79,07,250 | 2,14,89,546 |
Additional Tax burden/(savings) in option 2 | – | – | -7,800 | -13,000 | -31,200 | -34,320 | -35,880 | -39,000 | -42,744 |
Additional Tax burden/(savings)(%)in option2 | – | – | -9.09% | -9.80% | -13.79% | -2.05% | -0.96% | -0.49% | -0.20% |
Resident Senior citizen
(aged above 60 years but below 80 years) |
Total income | ||||||||
4,90,000 | 8,50,000 | 10,00,000 | 12,00,000 | 15,00,000 | 56,50,000 | 1,11,50,000 | 2,11,50,000 | 5,11,50,000 | |
Tax in FY 2020-21 (Option 1)* | Nil*** | 52,000 | 83,200 | 1,30,000 | 2,23,600 | 16,70,240 | 37,19,560 | 79,43,000 | 2,15,28,728 |
Tax in FY 2020-21 (Option 2)** | Nil*** | 54,600 | 78,000 | 1,19,600 | 1,95,000 | 16,38,780 | 36,86,670 | 79,07,250 | 2,14,89,546 |
Additional Tax burden/(savings) in option 2 | – | 2,600 | -5,200 | -10,400 | -28,600 | -31,460 | -32,890 | -35,750 | -39,182 |
Additional Tax burden/(savings)(%)in option2 | – | 5.00% | -6.25% | -8.00% | -12.79% | -1.88% | -0.88% | -0.45% | -0.18% |
Resident very Senior citizens (aged above 80 years) | Total income | ||||||||
4,90,000 | 8,50,000 | 10,00,000 | 12,00,000 | 15,00,000 | 56,50,000 | 1,11,50,000 | 2,11,50,000 | 5,11,50,000 | |
Tax in FY 2020-21 (Option 1)* | Nil*** | 41,600 | 72,800 | 1,19,600 | 2,13,200 | 16,58,800 | 37,07,600 | 79,30,000 | 2,15,14,480 |
Tax in FY 2020-21 (Option 2)** | Nil*** | 54,600 | 78,000 | 1,19,600 | 1,95,000 | 16,38,780 | 36,86,670 | 79,07,250 | 2,14,89,546 |
Additional Tax burden/(savings) in option 2 | – | 13,000 | 5,200 | – | -18,200 | -20,020 | -20,930 | -22,750 | -24,934 |
Additional Tax burden/(savings)(%)inoption2 | – | 31.25% | 7.14% | 0.00% | -8.54% | -1.21% | -0.56% | -0.29% | -0.12% |
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.