Mutual Funds Taxation – Your Ready Reckoner for FY13-14

Taxation of Mutual funds is one of the sweet spots that gives this Investment Vehicle an edge over other Financial instruments, especially in Debt/Fixed Income category.

Tax Consideration on Income from Mutual Funds

Income from Mutual Funds can either be in the form of Dividends or Redemption/Switch of units . Below we provide tax treatment of both these aspects.

[1] Redemption/Switch of Mutual Fund Units
Any income/loss generated from redemption/switch of units of Mutual Funds are considered as Capital Gains and are further classified as below:
  Short-term capital gains if holding period is upto 1 year
  Long-term capital gains for 1 year+ holding period.


Comprehensive guide to Mutual Funds Taxation for FY13-14
Long-term Capital Gains Taxation of Mutual Funds FY13-14
Fund Cateogry Resident Individual/HUF Domestic Corporate NRI
Equity-oriented* NIL NIL NIL
Other than Equity-oriented 10% without indexation or 20% with indexation whichever is lower + 10% Surcharge#
+ 3% Cess


With Indexation
= 20.6% or 22.66%
10% without indexation or 20% with indexation whichever is lower + Surcharge as applicable##
+ 3% Cess


With Indexation
= 21.63% or 22.66%
10% without indexation or 20% with indexation whichever is lower + 10% Surcharge#
+ 3% Cess


With Indexation
= 20.6% or 22.66%
Short-term Capital Gains Taxation of Mutual Funds FY13-14
Fund Cateogry Resident Individual/HUF Domestic Corporate NRI
Equity-oriented* 15% + 10% Surcharge# + 3% Cess
= 15.45% or 16.995%
15% + Surcharge as applicable## + 3% Cess
= 16.225% or 16.995%
15% + 10% Surcharge# + 3% Cess
= 15.45% or 16.995%
Other than Equity-oriented 30%^ + 10% Surcharge# + 3% Cess
= 30.9% or 33.99%
30% + Surcharge as applicable## + 3% Cess
= 32.445% or 33.99%
30% + 10% Surcharge# + 3% Cess
= 33.99%

[2] Dividend declared by Mutual Fund
Dividend declared by Mutual Funds is tax-free in the hands of investor across Individuals/HUFs, Domestic Corporates and NRIs, however, respective Mutual Fund scheme need to pay Dividend Distribution Tax (DDT) on the distributed dividend and post-dividend NAV is net of DDT also.

Mutual Fund Dividend Distribution Tax (Payable by the Scheme) FY13-14
Fund Cateogry Resident Individual/HUF Domestic Corporate NRI
Equity-oriented* NIL NIL NIL
Other than Equity-oriented 25% + 10% Surcharge + 3% Cess
= 28.325%
30% + 10% Surcharge + 3% Cess
= 33.99%
25% + 10% Surcharge + 3% Cess
= 28.325%

Provision for Tax Deducted at Source (TDS) for NRIs
For NRIs, any gains arising based on redemption/switch-out from Mutual Fund scheme is subject to TDS.

Tax deducted at source pertaining to NRI Investors FY13-14
Fund Cateogry Short Term Capital Gain Long Term Capital Gain
Equity-oriented* 16.995% NIL
Other than Equity-oriented 33.99% 22.66% @

* – Securities transaction tax (STT) will be deducted on Equity-oriented schemes at the time of redemption/ switch to the other schemes/ sale of units at the rate of 0.1%

# – Surcharge at the rate of 10% is proposed to be levied in case of individual/ HUF unit holders where their income exceeds Rs 1 crore. (Effective from 1 April 2013)

## – Surcharge at the rate of 5% is proposed to be levied for domestic corporate unit holders where the income exceeds Rs 1 crore but less than 10 crores and at the rate of 10%, where income exceeds 10 crores. (Effective from 1 April 2013)

^ – Assumed for highest tax bracket, actual tax rate depends on applicable tax slab.

@ – After providing for indexation


Disclaimer: Above illustration is meant for information purposes only and does not constitute any legal or tax advice. Readers are advised to consult their tax consultants to know the exact nature of consequences of tax, if any.


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