TAX REGIME FOR MUTUAL FUNDS IN INDIA
A. INCIDENCE OF TAX ON MUTUAL FUNDS
C. Provisions regarding Dividend income and Bonus
- (i) Dividend Distribution Tax (DDT) on income distributed on Mutual Fund Schemes
| Rate of DDT#* | |||
|---|---|---|---|
| Description | Individual/HUF | Any other person | |
| Equity Oriented Scheme | NIL | NIL | |
| Other than Equity Oriented Scheme | 28.84% | 34.61% | |
| Infrastructure Debt Funds (IDFs)^ | 28.84%^ | 34.61%^ | |
Note:
#The above rates are including applicable surcharge of 12% and education cess of 3%.
* Income distribution tax payable by the mutual funds would be at the rates specified above on the net amount of dividend distributed (i.e. the taxes would be grossed up). This provision is effective from 1 October 2014 and the impact of the same has not been reflected above.
^Where any income is distributed by a mutual fund under an infrastructure debt fund scheme to a non-resident investor (corporate and non-corporate), the mutual fund shall be liable to a distribution tax at the rate of 5.77% on the income so distributed.
- (ii) Goods & Services Tax (GST)
Mutual Funds have to pay service tax at 18% on exit load collected by the Fund.
B. INCIDENCE OF TAX ON MUTUAL FUND INVESTORS- (i) Capital Gain Tax
| Rate of Capital Gain Tax | ||||
|---|---|---|---|---|
| Description | Individual/HUF | Domestic Company | NRI | |
| Long Term Capital Gain | ||||
| Equity Oriented Fund | Period of holding | More than 12 months | More than 12 months | More than 12 months |
| Rate of tax | Nil | Nil | Nil | |
| Other than Equity Oriented Fund (Listed) | Period of holding | More than 36 months | More than 36 months | More than 36 months |
| Rate of tax* | 20% (with indexation) | 20% (with indexation) | 20% (with indexation) | |
| Other than Equity Oriented Fund (Unlisted) | Period of holding | More than 36 months | More than 36 months | More than 36 months |
| Rate of tax | 20%(with indexation) | 20%(with indexation) | 20%(with indexation) | |
| Short Term Capital Gain | ||||
| Equity Oriented Fund | Period of holding | not more than 12 months | not more than 12 months | not more than 12 months |
| Rate of tax | 15% | 15% | 15% | |
| Other than Equity Oriented Fund | Period of holding | not more than 36 months | not more than 36 months | not more than 36 months |
| Rate of tax* | As per applicable slab rates | 30% | As per applicable slab rates | |
The individuals (including NRIs / PIOs) and HUFs, are taxed in respect of their total income at the following rates:
Note:
1. "Equity Oriented Scheme" means a fund where the investible funds are invested in equity shares in domestic companies to the extent of more than 65% of the total proceeds of such fund; and the fund has been set up under a scheme of a Mutual Fund specified under section 10(23D) of the Income-tax Act, 1961 (Act).
2. Withholding tax applies on capital gains for NRI investors.
3. In case of non-resident unit holder who is a resident of a country with which India has signed a Double Taxation Avoidance Agreement ("DTAA" or "tax treaty") (which is in force) income-tax is payable at the rates provided in the Act, as discussed above, or the rates provided in such tax treaty, if any, whichever is more beneficial to such non-resident unit holder.
Various Categories of MF Schemes which fall under "Other than Equity Oriented Funds"
| 1 | Liquid Funds /Money Market Funds |
| 2 | Income (Debt) Fund |
| 4 | Balanced Fund (Equity < 65%) |
| 5 | Gilt Funds |
| 6 | Gold ETFs |
| 8 | Other ETFs |
| 9 | Fund Of Funds Investing Overseas |
| 10 | Fund Of Funds Investing Domestic |
| 11 | Infrastructure Debt Funds |
- (ii) Securities Transaction Tax (STT)
| Description | STT Rates | Payable By |
|---|---|---|
| Purchase of units of equity oriented mutual fund (delivery based ) on recognized stock exchange | Nil | - |
| Sale of units of equity oriented mutual fund (delivery based ) on recognized stock exchange | 0.001% | Seller |
| Sale of units of equity oriented mutual fund (non-delivery based) | 0.025% | Seller |
| Sale of unit of an equity oriented fund to the Mutual Fund | 0.001% | Seller |
- (i) Any losses arising from the sale/redemption of units purchased within 3 months prior to the record date (for entitlement of dividends) and sold within 9 months after such date, is disallowed to the extent of dividend income received or receivable on such units which is claimed as tax exempt.
- (ii) Where an investor purchases units within 3 months before the record date (for entitlement of bonus) and sells/redeems the units within 9 months after that date, and by virtue of holding the original units, he becomes entitled to bonus units, then the loss arising on transfer of original units shall be ignored for the purpose of computing his income chargeable to tax. In fact, the loss so ignored shall be treated as cost of acquisition of such bonus units.
- (i) Capital gains arising on transfer by a unit holder of units held by him on consolidation of schemes of a mutual fund shall not be treated as a transfer and are exempt from capital gains tax provided they are allotted units in the consolidated scheme of the mutual fund. The aforesaid exemption is provided only where the consolidation is of two or more schemes of an equity oriented fund or two or more schemes of a non-equity oriented fund.
- (ii) Capital gains arising on transfer by a unit holder of units held by him on consolidation of plan of a mutual fund scheme shall not be treated as a transfer provided they are allotted units in the consolidated plan of that scheme of the mutual fund.
- (iii) iii. Switching units of mutual fund within the same scheme from Growth Plan to Dividend Plan and vice-versa is subject to capital gains tax.
- (iv) iv. Fund of Fund Scheme that invests in an Equity Oriented Fund is subjected to the same tax treatment as applicable to a non-equity oriented fund (i.e. other than equity oriented fund).