Sunday, 5 January 2014

Taxation: Mutual Funds

Taxes on Mutual Funds is capital gains tax that gets special treatment.

Funds with 65% equity or more

Short Term Capital Gains Tax
Holding less than 365 days
Long Term Capital Gains Tax
Holding more than 365 days
Securities Transaction Tax
(STT)
Dividend Distribution Tax
(DDT)
Resident Individual 15.45% or 16.995% Zero 0.001% Zero
Domestic Company 16.223% or 16.995% Zero 0.001% Zero
NRI 15.45% or 16.995% Zero 0.001% Zero

Funds with less than 65% equity

Short Term Capital Gains Tax
Holding less than 365 days
Long Term Capital Gains Tax
Holding more than 365 days
Securities Transaction Tax
(STT)
Dividend Distribution Tax
(DDT)
Resident Individual Added to regular income with Indexation** -22.66%
without Indexation - 11.33%
0.001% 28.325% Indirect
Domestic Company 32.445% or 33.99% 22.66% with Indexation
11.33% without Indexation
0.001% 33.99% Indirect
NRI 33.99% 22.66% with Indexation
11.33% without Indexation
0.001%28.325% Indirect
Source:AMFI

**Please see the following example on "Indexation".


Tax calculation on funds with less than 65% equity:

This is done using the CII chart:


Tax = 22.66% of Capital Gain,

where Capital Gain = Sale Fund Value - Indexed Cost.

and Indexed Cost = (CII in year of Sale/CII in year of purchase)*Cost.


For example:
If the cost of debt fund in 2010-11 was INR 100,000 and its sale value in 2013-14 was INR 135,000, then, indexed cost of the debt fund is 100,000*(939/711) or INR 132,067.

Capital Gain is INR 135,000 - INR 132,067, or INR 2933.

Tax = 22.66% of INR 2933, or INR 664.

If your fund's sale value was, say, INR 120,000 (instead of INR 135,000), then there is no capital gain as per indexation. Hence no tax.

In this case there is long term capital loss as per indexation. This loss, INR 12,067 can be adjusted against any other long term capital gain, can be carried forward in the balance sheet.

Further Information on Mutual Fund Taxation:

Further reading:RatRace2Freedom

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