4 replies on this article “Tax Treatment of MF Returns”

1. Tarun Aggarwal says:

   March 23, 2011 at 2:20 pm

   Thanks Ashal and Manish.
   Few more queries regarding the same;-
   1) Is there only two categories for tax determination via. Equity and Debt? if yes, then where would the “Balanced (Hybrid) funds” falls like “HDFC Balanced”?
   2) “for debt MFs 10.3% without indexation or 20.6% with indexation whichever way is tax favorable to the investor”. Can you please explain what do you mean by “indexation” here? and how this is calculated?

   Tarun

   Reply
   1. Manish Chauhan says:

      March 23, 2011 at 6:44 pm

      Tarun

      1. If a mutual funds has 65% or more component in Equity its considered as “Equity funds” else “debt fund”

      2. Indexation just means that you can increase the cost price as per inflation to arrive at the right profit , see : http://jagoinvestor.dev.diginnovators.site/2009/05/how-to-calculate-capital-gains-and-what_7801.html

      Manish

      Reply
2. ashal jauhari says:

   March 23, 2011 at 12:25 pm

   Dear Tarun, Here is the answer –

   Returns from MFs may be in 2 different heads.

   A. Dividends

   B. Capital Gains (based upon the holding period STCG or LTCG)

   Taxation of dividends –

   Tax free in the hands of investors be it from Eq. MF or Debt MF but in case of Debt MF, the DDT is paid by the AMC from the fund corpus itself whereas Eq. MF are free of DDT (dear manish, please accept this correction in your reply)

   Taxation of Gains – Again based upon the holding period, the gains are classified under 2 heads,

   STCG – for less than 1Y holding, for Eq. MFs a fix rate of 15.45% but for Debt MFs, the marginal income tax slab rate of the investor (10.3, 20.6 pr 30.9% as the case may be)

   LTCG – for more than 1Y holding, for Eq. MFs tax free, for debt MFs 10.3% without indexation or 20.6% with indexation whichever way is tax favorable to the investor.

   Thanks

   Ashal

   Reply
3. Manish Chauhan says:

   March 23, 2011 at 9:10 am

   Tarun

   For divident option . Company pays 14-15% of Dividend distribution tax and then you get dividend on which you dont pay any tax .

   For growth option , you dont get dividends , But then short term and long term gains applies to both growth and dividend options in a samw way

   Short term capital gains : added to salary and taxed (before 1 yr)
   Long term capital gains : no tax after 1 yrs

   Reply

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