So April 2019, has started and this means changes in Budget 2019 on Mutual Taxation for FY 2019-20 or AY 2020-21 will commence. Let us see what has changed in Mutual Fund Taxation for Resident, NRIs, Corporates & other categories of Investors.
We will discuss, Mutual Fund Taxation applicable for FY 2019-20, taxation on Dividend, Dividend Distribution Tax, Capital Gains taxes for mutual funds. Also, we shall discuss Equity Mutual Fund Taxation & Debt Mutual Fund Taxation applicable from now on.
Mutual Fund Taxation
Income from Mutual Fund is generated in 2 Ways:
- Dividend
- Capital Gain (Growth in NAV, which can be Profit or Loss. Tax becomes due if you chose to withdraw this profit/loss)
Let’s start with Dividend Income…
Download the PDF Version of Tax Reckoner for FY 2019-20 & AY 2020-21
Dividend Distribution Tax in Mutual Funds
Congratulation Dividend is still tax-free… But! They come with a tax called Dividend Distribution Tax (DDT). So an amount equivalent to the tax is pre-deducted, so it is not completely tax-free. But yes the net (after DDT) is tax-free in your hand.
Now, what about Capital Gain or Profit?
Capital Gain Tax in Mutual Funds
Capital Gain is further Divided as Short Term Capital Gain (STCG) & Long Term Capital Gain (LTCG). Based on your holding period & type of mutual fund (Equity & Debt), this can be decided.
Equity Mutual Fund: If held more than 12 months of more than it is LTCG otherwise STCG.
Debt Mutual Fund: If held than 36 months of more than it is LTCG otherwise STCG.
Fund of Funds (FOFs) & Gold Funds qualify as debt funds.
Now, when you know whether the profits you have made is LTCG or STCG, you can know the tax amount by this table.
** Exemption of tax on Long Term capital gain on equity oriented scheme units u/s 10(38) withdrawn and tax @ 10% (without indexation) will be charged on capital gain exceeding Rs 1 Lakhs, provided that such is subject to STT on the transfer of units – Means you need to pay LTCG on equity if it is more than INR 100000/- in a financial year. Otherwise below 1 Lakh, it is tax-free.
In addition to the above rate, there would be an additional applicable surcharge, if any, and Health & Education Cess at the rate of 4% on income-tax and surcharge.
** Also, in equity mutual funds the gains upto, 31.01.2018 have been “grandfathered” (waived). To understand Grandfathering Principal Click Here & Here.
The Surcharge applicable for FY 2019-20:
Securities Transaction Tax in Mutual Funds
Equity Oriented Fund – STT on sale of a unit of equity oriented mutual fund to the mutual fund is levied at 0.001%.
Other than Equity Oriented Fund – Purchase/ sale/ redemption of units other than equity-oriented units shall not be subject to STT.
Mutual Fund Taxation for NRIs – Some Additional Points
- Non-resident investors / FPIs shall be entitled to be governed by provisions of the applicable Tax Treaty (DTAA & others), which India has entered with the country of residence of the NRI, if that is more beneficial than the provisions of the Income-tax Act, 1961(‘the Act’), subject to certain conditions.
- As per section 90(4) of the Act, a non-resident shall not be entitled to claim treaty benefits, unless the non-resident obtains a Tax Residency Certificate (‘TRC’) from their home country, containing such particulars as may be prescribed.
- The short term/long term capital gain tax will be deducted (TDS) at the time of redemption of units in case of non-resident investors only.
4. The rate of TDS is: With these TDS rates, a surcharge is also applicable as mentioned above.
Wish to Read Some more Advanced Details on Mutual Fund Taxation? Click Here
Download the PDF Version of Tax Reckoner for FY 2019-20 & AY 2020-21
Download the PFD Version of MF Tax Reckoner for FY 2019-20 & AY 2020-21 post-July Budget of 2019
Mutual Fund Taxation is important as information as it helps planning investment in better ways. If you have any question feel free to reach out to me using the comments section below or my email madhupam@thewealthwisher.com.
Mutual Fund taxation is also subject to changes by the regulator. Please consult your tax consultant before making a decision based on the information produced here.
