Fwd: { IFPA } Mutual Fund Taxation
Thangaraj Marimuthu
---------- Original message ----------
From:""Jeyshri Barathwaaj \(Valady\)""< barat...@gmail.com >
Date: 16 Jun 14 22:26:46
Subject: { IFPA } Mutual Fund Taxation
To: "Jeyshri Barathwaaj \(Valady\)" <barat...@gmail.com>From: ifp...@googlegroups.com [mailto:ifp...@googlegroups.com] On Behalf Of Jeyshri Barathwaaj (Valady)
Sent: 04 June 2014 19:29
To: Jeyshri Barathwaaj (Valady)
Subject: { IFPA } Mutual Fund Taxation
Please explain Mutual Fund Taxation in India in detail.
Income from Mutual Fund can be divided into 2 parts Capital Gain (increase in value of your investment) or dividends that investors receive on regular intervals if they have opted for dividend plans. So taxation of Mutual Funds in India can be divided in 2 parts Capital Gain & Dividends.
Capital Gain Taxation on Mutual Funds
Capital Gain is appreciation in the value of asset – if you buy something for Rs. 1 Lakh & sell it for Rs. 1.5 Lakh, you have made a Capital Gain of Rs. 50,000. Capital Gains are further divided into short term & long term depending on their investment horizon.
Short Term capital Gain arises if investment is hold for less than 1 year or in simple words sold before completion of 1 year. Here 1 year means 365 Days.
Long Term Capital Gain arises if investment is sold after 1 year.
Mutual Fund Capital Gain Tax further depends on which type of fund it is – Equity or Debt.
Mutual Fund Dividend Taxation
Dividend taxation will depend on which type of Mutual Fund you are investing in – Equity or Debt.
There is no dividend distribution tax on equity mutual funds & also the dividend received by investors is tax free in the hands of investors.
In case of Debt Mutual Funds – dividends received by investor are tax free in their hand or they don’t need to show it as a taxable income. But there is dividend distribution tax paid by mutual funds to income tax department.
There is no dividend distribution tax on equity mutual funds but the Debt and Money market schemes declaring dividend has to pay dividend distribution tax (DDT) depending on the investor category as follows;
Individual/ HUF
Equity oriented schemes
NIL
Debt Schemes
25% +10% Surcharge + 3% Ce ss =28.325%
Money market and Liquid schemes
25% + 10% Surcharge + 3% Cess = 28.325%
Domestic Company
Equity oriented schemes
NIL
Debt Schemes
30% + 10% Surcharge + 3% Cess = 33.99%
Money market and Liquid schemes
30% + 10% Surcharge+3% Cess = 33.99%
NRI
Equity oriented schemes
NIL
Debt Schemes
25% +10% Surcharge + 3% Cess = 28.325%
Money market and Liquid schemes
25%+ 10% Surcharge + 3% Cess = 28.325%
· Long Term Capital Gains (Units held for more than 12 months)
Individual/ HUF
Equity oriented schemes**
NIL
Other than equity oriented schemes
10% without indexation or 20% with Indexation whichever is lower + 10% Surcharge $+ 3% Cess
Without indexation
10.30% or 11.33 %
With indexation
20.60% or 22.66%
Domestic Company
Equity oriented schemes**
NIL
Other than equity oriented schemes
10% without indexation or 20% with Indexation whichever is lower+ Surchrge as applicable $$ + 3% Cess
Without indexation
10.815% or 11.33%
With indexation
21.63% or 22.66%
NRI*
Equity oriented schemes**
NIL
Other than equity oriented schemes
10% without indexation + 10% Surcharge $+ 3% Cess(Indexation benefit not available to NRIs)
Nil Surcharge if the income less than Rs 1 crore
$ Surcharge at the rate of 10% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 1 crore.
$$ Surcharge at the rate of 5% shall be levied for domestic corporate unit holders where the income exceeds Rs 1 crore but less than 10 crores and at t he rate of 10%, where income exceeds 10 crores.
*The short term/long term capital gain tax will be deducted at the time of redemption of units in case of NRI investors only.
** STT @ 0.001% will be deducted on equity funds at the time of redemption and switch to the other schemes.
Mutual Fund would also pay securities transaction tax wherever applicable on the securities bought / sold.
^ Assuming the investor falls into highest tax bracket.
For NRIs in case of Short Term Capital Gain there will be a TDS (tax deducted at source). Which means Tax will be deducted by Mutual Fund Company before paying redemption (sell) amount.
Tax is deducted at Source for NRIs as per the below table;
Short term capital gains
Long term capital gains
Equity oriented schemes
15.45%
NIL< /span>
Other than equity oriented schemes
30.90%
10.30%
Cost-Inflation Index
Cost In flation Index (CII) is a figure that is announced by the tax authorities each year that represents the impact of the inflation in the economy. This is a figure that will determine the extent of the benefit that the individual will receive on their investments when they sell them and a capital gains tax has to be paid on it.
The cost inflation index (CII) is calculated as shown:
Inflation Index for year in which asset is sold
CII = ------------------------------------------------------------------------
Inflation Index for year in which asset was bought
This index is then multiplied by the cost of the purchase to arrive at “indexed cost”.
For e.g. let’s assume the following ;
•
A Debt Fund was purchased in FY 1996-97 for Rs. 2.50 lacs
•
The same fund was sold in FY 2004-05 for Rs. 4.50 lacs
•
Cost Inflation Index in 1996-97 was Rs. 305 and in 2004-05 it was Rs. 480
So, indexed cost would be:
480
Rs. 2,50,000 X ------ = Rs. 3,93,443
305
Now let us calculate LTCG using indexation
Long Term Capital Gains would be calculated as:-
Capital Gains = Selling Price of an asset – Indexed Cost
i.e. Rs. 4,50,000 – Rs. 3,93,443 = Rs. 56,557
Therefore tax payable will be 20% (excluding applicable cess) of Rs. 56,557 which comes to Rs. 11,311.Now let us calculate LTCG without indexation
Capital Gains tax would have been as follows:-
Capital Gains = Selling Price of an asset – Cost o f acquisition
i.e. Rs. 4,50,000 – Rs. 2,50,000 = Rs. 2,00,000
Therefore tax payable @ 10% (excluding applicable cess) of Rs. 2,00,000 would have come to Rs. 20,000 !!
So you save Rs. 8,689 in taxes by using the benefit of indexation.
You can pay tax on long term capital gains by either of the two methods:-
At the rate of 20% (excluding applicable cess) with indexation OR at the rate of 10% (excluding applicable cess) without indexation.
Scheme Names
QLF/QGSF/QFOF/QMAF
QGF-Gold ETF
QLTEF/QTSF/Index ETF
Tax on Capital Gains *
Long Term
Short Term
Long Term
Short Term
Long Term
Short Term
Resident Individuals & HUF
20% with Indexation or 10% without Indexation
Maximum 30%
20% with Indexation or 10% without Indexation
Maximum 30%
Nil
15%
FII’s / Overseas Financial Organisations
10% without Indexation
40% in case of foreign companies and 30% in case of others.
10% without Indexation
40% in case of foreign companies and 30% in case of others.
Partnership Firm
20% with Indexation or 10% without Indexation
30%
20% with Indexation or 10% without Indexation
30%
Non Resident Indians
10% without Indexation (on transfer of long term capital assets being unlisted securities)
30%
20% with Indexation or 10 % without indexation (on transfer of long term capital assets being listed securities)
30%
Indian Companies
20% with Indexation or 10% without Indexation
30%
20% with Indexation or 10% without Indexation
30%
Foreign Companies
10% without Indexation (on transfer of lon g term capital assets being unlisted securities)
40%
20% with Indexation (on transfer of long term capital assets being listed securities)
40%
·
* The mentioned Tax Rates shall be increased by applicable surcharge, if any, Education Cess @ 2% and Secondary higher education cess @ 1%. This shall apply to all th e categories of tax payers. For further details on Taxation please refer the clause of Taxation of SAI.
There will be three categories to which the Tax rates are applicable General tax payers, Female tax payers and Senior Citizens.
General tax payers:
Annual income (in Rs.)
Tax Rate
0 to 2,00,000
No tax
2,00,001 to 5,00,000
10%
5,00,001 to 10,00,000
20%
Above 10,00,000
30%
Female tax payers:
Annual income (in Rs.)
Tax Rate
0 to 2,00,000
No tax
2,00,001 to 5,00,000
10%
5,00,001 to 10,00,000
20%
Above 10,00,000
30%
Senior Citizens tax payers: Aged 60 years but less than 80 years
Annual income (in Rs.)
Tax Rate
0 to 2,50,000
No tax
2,50,001 to 5,00,000
10%
5,00,001 to 10,00,000
20%
Above 10,00,000
30%
Very Senior Citizens tax payers: Aged above 80 years
Annual income (in Rs.)
Tax Rate
0 to 5,00,000
No tax
5,00,001 to 10,00,000
20%
Above 10,00,000
30%
Deduction from total income
Under section 80C of the Act, an assesse, being an individual or HUF, is eligible to claim a deduction upto an aggregate of Rs. 1 lacs on account of sums paid as subscription to units of an Equity Linked Savings Scheme.
The expression "Equity Linked Savings Scheme " refers to Equity Linked Savings Scheme, 2005 as notified by the Central Board of Direct Taxes, Ministry of Finance vide notification dated November 3, 2005 as amended vide notifica tion dated December 13, 2005.
Securities Transaction Tax
Under Chapter VII of Finance (No. 2) Act, 2004 the unit holder is liable to pay Securities Transaction Tax ('STT') in respect of "taxable securities transaction" at the applicable rates. Taxable securities transactions include purchase or sale of units of an equity oriented fund, entered into on the stock exchange or sale of units of an equity oriented fund to the mutual fund.
The purchaser and seller of units of an equity oriented fund are not liable to pay STT (w.e.f. 1st June, 2013) where the purchase and sale is entered into on a recognized stock exchange and the contract for the purchase and sale of such units is settled by actual delivery or transfer of such units.
At the time of sale of units of equity oriented fund to the mutual fund, the seller is required to pay an STT @ 0.001%.
The securities transaction tax paid by the assesse during the year in respect of taxable securities transactions ente red in the course of business shall be allowed as deduction under section 36 of the Act subject to the condition that such income from taxable securities transactions is included under the head 'profits and gains of business or profession'.
Wealth Tax
Units held under the Scheme of the Fund are not treated as assets within the meaning of section 2(ea) of the Wealth-tax Act, 1957 and are, therefore, not liable to Wealth-tax.Incomes from Units
Under the provisions of section 10(35) of the Act, any income (other than income arising from transfer of units) received by any person in respect of the units of the mutual fund is exempt from income tax.
Dividend Distribution Tax
Dividend Distribution Ta x (DDT) is paid by debt funds on the dividends before it is distributed. The rate of DDT depends on the type of fund and type of investor.
Gains on transfer / redemption of Units
Gains arising on transfer / redemption of Units as well as switching between schemes will be chargeable to tax under the Act. The characterization of income from investment in securities as 'business income' or 'capital gains' will have to be examined on a case-to-case basis.
Gift Tax
The Gift -Tax Act, 1958 has been repealed since October 1, 1988. Gift of units of Mutual fund units would be subject to income-tax in the hands of the donor. As per section 56(2)(vi), receipts of securities, fair market value of which exceeds fifty thousand rupees, without consideration or without adequate consideration is taxable as income in the hands of individuals / HUFs.
Further the above provision of section 56(2)(vi) shall not apply to any units received by the done.
a.
From any relative; or
b.
On the occasion of the marriage of the individual; or
c.
Under a will or by way of inheritance; or
d.
In contemplation of death of the payer or donor, as the case may be; or
e.
From any local authority as defined in the Explanation to clause (20) of section 10 of the Act; or
f.
From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 of the Act; or
g.
From any trust or institution registered under section 12AA of the Act.
Relative shall mean:
i
spouse of the individual;
ii
Brother or sister of the individual;
iii
Brother or sister of the spouse of the individual;
iv
Brother or sister of either of the parents of the individual;
v
Any lineal ascendant or descendant of the individual;
vi
Any lineal ascendant or descendant of the spouse of the individual;
vii
Spouse of the person referred to in clauses (ii) to (vi);
Investors choose between growth, dividend and reinvestment options based on their need and the tax implications.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
Source: http://www.quantumamc.com/FAQ/Taxation.aspx
Regards
Valady V.Barathwaaj
--
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