Taxation on Equity Mutual funds u/s 10(35)
Whether the gain on sale is known as short-term or long-term capital gains, stock mutual funds are subject to capital gains tax. Both resident and non-resident Indians pay the same capital gains tax rates.
There is no dividend transfer tax on dividend income distributed by equity mutual funds, unlike debt mutual funds.
|Type Of Tax||Tax Rate|
|Short Term Capital Gains Tax (under section 111A)|
|Long Term Capital Gains Tax ( under section 112 (A)]|
|Resident Indian||10% ( Capital gains exceeding ₹ 1 Lakh)|
|Non-Resident Indian||10%( Capital gains exceeding ₹ 1 Lakh)|
|Dividend Distribution Tax||Nil (as per section 115R)|
What are Equity Mutual Funds?
An equity mutual fund is a joint venture in which many of its assets under management are heavily invested in shares, including the equity share market.
They fall into the category of “Stock Mutual Funds,” defined as at least 65% of the portfolio invested in equity and equity funds.
All shared funds, including equities, share funds, equity funds, sector funds, large fund funds, medium-sized funds, and small portfolio funds, etc., are classified as joint venture funds or joint-stock funds.
Examples – large-cap, med fund, small-cap funds, sector funds, limited funds.
How is capital gains tax computed on equity mutual funds?
Major profits from the sale of equity funds only attract income tax if the holding period was less than a year. Equity Mutual Funds are exempt from paying long-term interest income, which means that if you sell your hold on equity mutual fund after one year of holding, you will not be required to pay any income tax on that transaction.
Illustration 1: Calculation of capital gains tax in case you sell an equity mutual fund before 1 year of holding
Mr. B, a resident of India, sold his investment in the equity mutual fund for ₹ 25,000 on March 20, 2017. He bought the program for ₹ 18,000 on 15 April 2016. What will be his tax subsidy?
Mr. B earns a maximum profit of ₹ 7,000 through his sales transaction. With his acting term of fewer than 12 months, he is liable to pay a short income tax rate of 15%, which translates into a tax liability of ₹ 1,050 for this transaction.
|Computation Of Capital Gains Tax||Rs.|
|Selling Price of equity mutual fund||25,000|
|Cost of acquisition||18,000|
|Short Term Capital Gains||7,000|
|Short Term Capital Gains rate @15%||1,050|
Capital gains on the sale of equity mutual funds sold after 12 months of holding period are treated as long-term capital gains.
Under section 10(38) of the Income Tax Act, equity mutual funds are excluded from paying long-term capital gains tax, which ensures that if you sell your equity mutual fund holding after 12 months, you won’t have to pay any capital gains tax.
How much is dividend distribution tax (DDT) charged on equity mutual funds?
Any allocation of income to joint-equity funds is not taxable at all in the hands of the investor. Besides, there is no dividend on the equity fund, which means that the joint house is also not liable for tax deductions on the equity mutual fund scheme’s benefits.
Note: DDT is an abbreviation for ‘Dividend Distribution Tax,’ which refers to a tax deducted or levied by a trusted house (joint venture company) on any divisions declared and distributed to its investors.
FAQs on Taxation on Equity Mutual Funds
✅ How are equity mutual funds taxed?
Two factors determine how shared fees are charged in India; Investment plan and mutual funds time. Joint equity fees sold within one year are subject to a 15% interest tax, and joint-equity reimbursed after one year is subject to 10% tax. However, long-term gains earned up to ₹ 1 Lakh are tax-free. To get more information regarding the same, contact Dialabank at 9878981144.
✅ How do equity mutual funds work?
Equity shares are invested in shares of large, medium, or small companies depending on market conditions. Typically, investors invest at least 60% of their assets in stocks. The rate of return on equity shares depends largely on the performance of the company.
✅ Which is the best equity mutual fund?
To decide on the best equity fund, you should evaluate the fund’s effectiveness based on investment returns. A five-year return can be regarded as the normal probationary period. The applicant must consider other factors such as the risk recovery ratio, the fund’s rousing performance, and the number of capital expenditures to determine an equitable share fund. The Axis Focus 25, ICICI Prudential US Bluechip Equity Fund, and Aditya Birla Sun Life Banking & Financial Service Fund are highly profitable joint venture funds.
✅ Are equity funds tax-free?
Shared equity fees based on dividends and long-term profits of up to ₹ 1 Lakh are considered to be tax-free income in India. However, some stocks redeemed for one year, and long-term gains of more than 1 lakhs are charged.
✅ Are equity mutual funds safe?
Joint investments invested in India are subject to market risks depending on the type of joint venture. For example, shared stock investments in stocks are considered to be the riskiest investments. However, certain joint ventures such as government security funds where you can get benefits at least a significant amount of investment.
Table of Contents
- 1 Taxation on Equity Mutual funds u/s 10(35)
- 2 What are Equity Mutual Funds?
- 3 How is capital gains tax computed on equity mutual funds?
- 4 Capital gains on the sale of equity mutual funds sold after 12 months of holding period are treated as long-term capital gains.
- 5 How much is dividend distribution tax (DDT) charged on equity mutual funds?
- 6 FAQs on Taxation on Equity Mutual Funds