Taxes on Mutual Fund: Introduction

The government has given many options to the sector to encourage equity markets. Under Section 10 (38) of the Income Tax Act, exemption of long term capital gains arising from the sale of equity shares in a company or unit of equity oriented fund is provided.

An equity-oriented fund is one where an amount is invested by way of equity shares in domestic companies, to the extent of not exceeding 65% of the total income of such fund and by a scheme of mutual funds specified under clause Is installed under (23D). However, capital taxes arising from long term capital asset on the transfer of listed securities with effect from AI (2019-20) will exceed @ 10% to 100,000 / - but on the satisfaction of the following conditions: -
  1. In the case of equity shares, securities transaction tax has been paid on both acquisition and transfer and
  2. In a case where long-term capital assets are in the nature of a unit of an equity-oriented fund, the transaction tax of securities has been paid on transfer.
However, long-term capital gains will be calculated without any impact on the inflation index in terms of cost of acquisition and improvement, if any, and in the case of a non-resident, the benefit of calculating capital gains in a foreign currency will not be allowed.

Benefits of Grand Fathering Rule

Investments made on or before January 31, 2018, are grand, the cost of acquisition will be considered higher in respect of such investments made up to January 31, 2018: -

1.) The actual cost of acquisition of such investment and
2.) Lower of
  • FMV of such asset
  • FVC received due to being transferred or will be the highest price quoted on the recognized stock exchange on January 31, 2018.

Taxes on Mutual Fund | Conclusion

Now as the time for filing tax returns is getting closer, it will be compulsory to calculate the tax according to the latest rules put in place by the government, according to which equity shares and equity-oriented funds have become taxable above the threshold. Are you correctly calculating capital gains arising from equity?

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DISCLAIMER

The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however, it should not be perceived as professional or legal advice. The reader should consult a professional before making any decision based upon this document. Under no circumstance, the author or the publisher shall have any liability to you for any loss or damage of any kind incurred as a result of the use of this information.