Mutual Fund Income

Income from Funds

Income from the Mutual fund has two forms- dividend, which is regular or fixed and also capital gains, which are random.

The entire income received in terms of units of the mutual fund, registered with the exchange board, will be exempted from paying the income tax. Basically, there are two types of mutual fund:

Equity mutual fund means that 65% of the funds will be invested in equity.
Debt mutual fund means that major investments would be made in debt related instruments.
Equity funds will be called short term capital assets if held for a time period of 11 months.

Debt funds are considered short term capital assets if held for a time period of 36 months or less.

Taxation of Fund Equity Funds –

Irrespective of your tax slab, short term capital gains on equity funds are @15% provided such units are transferred through a recognized a stock exchange in India.
Long term capital gains on equity funds are exempted from the tax, provided the units are transferred through a recognized stock exchange.
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 doesn’t occur through recognized stock exchange, such transactions are taxable at the normal rate.
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 assets are those which can be converted into cash within a period of 12 months.

Short term capital assets are those which are of capital nature. They are chargeable at a higher rate. Capital assets will be considered short term if held for less than 12 months.

A security mentioned in a recognized stock exchange.

a unit of the Unit Trust of India established under the Unit Trust of India Act
a unit of an equity oriented fund
a zero coupon bond

This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.