February 2, 2018

Budget 2018 – Mutual Fund Taxation FY 2018-19

Budget 2018 is finally out and now let us discuss the Mutual Fund Taxation FY 2018-19 and Capital Gain Tax Rates. The biggest change in case of Mutual Fund Taxation is applicability of LTCG and DDT. Let us discuss in detail.

3 Factors that determine the Mutual Fund Taxation

First, let us understand what are the factors that determine the Mutual Fund Taxation. The three major part of these are below.

# Your Residential Status-Resident or Non-Resident (NRI)

Your tax will be based on your residential status. If you are resident then the taxation rules will be different and if NRI then it differs. Hence, first, you have to make sure of what is your residential status.

# Types of Funds-Equity Funds or Non-Equity Funds-

Any fund which invests 65% or more in equity is called as Equity Fund. For example, large-cap funds, multi-cap funds, small and mid-cap funds or equity-oriented balanced funds (where the equity exposure is 65% or more) are all called equity-oriented funds.

If the equity portion is less than that, then they are all treated as debt funds or non-equity funds. For example liquid funds, ultra-short term funds, short-term funds, income funds, gilt funds, debt-oriented balanced funds, gold funds, fund of funds or money market funds.

# Holding periods of Investment–

The holding period for Equity and Debt Funds will be different for taxation purpose. For equity funds, if the holding period more than a year, then it is called long term. If the holding period is less than a year, then such equity mutual funds holding period is considered as short term. Whereas in

Whereas in the case of debt funds, holding period more than 3 years is considered as long-term. If holding period of debt funds is less than 3 years, then it is considered as short-term and taxed accordingly.

I will try to explain the same from below chart.

Mutual Fund Taxation FY 2018-19

Now you got the clarity on what will be STCG and LTCG. Let us move further and understand the Capital Gain Taxation for mutual fund investors.

Mutual Fund Taxation FY 2018-19 -Capital Gain Tax Rates

The biggest change from FY 2018-19 is the introduction of LTCG in Budget 2018. Below chart will give you the picture of that.

Mutual Fund Taxation FY 2018-19 -Capital Gain Tax Rate

 

Note-Surcharge @ 15%, is applicable where the income of Individual/HUF unit holders exceeds Rs. 1 crore. Also, surcharge @10% to be levied in case of individual/ HUF unitholders where the income of such unitholders exceeds Rs.50 lakhs but does not exceed Rs.1 Cr. Further, Health and Education Cess @ 4% will continue to apply on the aggregate of tax and surcharge.

I explained the new method of taxation of LTCG which was introduced in Budget 2018 in my earlier post “Budget 2018 LTCG Tax on Stocks and Mutual funds”. For better understanding, I am just showing you the recent LTCG changes to equity mutual funds from below image.

Budget 2018 LTCG Tax on Stocks and Mutual funds

Mutual Fund Taxation FY 2018-19 – Dividend Distribution Tax (DDT)

There are few investors who opt for dividend option in mutual funds. Hence, let us see the taxation on the dividend of such funds. Earlier there was no DDT for equity investors. However, from the Budget 2018, DDT @10% will be applicable to equity investors also.

Mutual Fund Taxation FY 2018-19 - DDT or Dividend Distribution Tax

 

Security Transaction Tax (STT) for FY 2018-19

Security Transaction Charges or STT is the charges or tax when you buy or sell securities (excluding commodities and currency) through a recognized stock exchange. Therefore,

The definition of securities involves the below products.

  • Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;
  • Derivatives;
  • units or any other instrument issued by any collective investment scheme to the investors in such schemes;
  • Security receipt as defined in section 2(zg) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
  • Government securities of equity nature;
  • Rights or interest in securities;
  • Equity-oriented mutual funds

Therefore, whenever you buy and sell these securities through a recognized stock exchange, then you have to pay this STT.

Now let us understand the latest Security Transaction Tax (STT) applicable for FY 2018-2019.

Security Tranction Tax (STT) Rates for FY 2018-19

TDS (Tax Deducted at Source) Rates for NRI Mutual Fund Investors 2018-19

Below are the applicable TDS rates for NRI Mutual Fund investors for FY 2018-19.

Tax Deducted at Source (TDS) Rates for NRI Mutual Fund Investors for 2018-19

 

Hope now you got the clarity related to Mutual Fund Taxation FY 2018-19.

Refer my latest posts related to mutual funds-

117 Comments

  1. Would you be able to review my portfolio?
    I’m 34 year old and looking to continue for 15 years. My idea is to own 2 of each Large, Multi, Focused, Midcap and Small cap. No tax saving fund required at the moment(NRI). I may be completely wrong in having these many but thought was to split across best 2 based on risk parameters and return grades/ranks in each group. Goal is wealth creation and retirement.

    Per month investment
    1. Motilal Oswald Multicap 35 – 500
    2. ICICI Nifty Next 50 – 1000
    3. Mirae Asset India – 500
    4. UTI Nifty Index – 500
    5. Axis Focused – 1000 – Commencing on 25 Jun
    6. Axis Midcap – 500 – Commencing on 01 Jul

    Planning few to start in couple of week.. still analysing
    1. One Multicap – 1000
    Kotak Multi or Franklin Focus or Parag Parikh Long Term
    2. One Large Cap – 1000
    Axis Bluechip (reliance and HDFC top 100 AUM is too big not sure if this can be considered)
    3. Midcap – 500 – L&T
    4.Two small cap – 500 each
    a. HDFC
    b. Either Axis or SBI

    Appreciate suggestion on
    1. if any to discontinue or start?
    2. If Large/Bluechip(90%) and Multi(65%) have mostly giant+large companies then should I just have 1 best from each category?
    3. Axis funds are doing good recently and have good crisis or Value research rating not sure if this is due to their star fund manager from 2016?

    Reply
  2. Hello Basu
    Great Article and well articulated. My question is on NRI taxation. Do NRI need to pay short term 15% or long term 10% and plus TDS ? If yes then does it mean paying double tax of what a resident is paying? Or TDS just means that at specified rate it will be deducted from profit before it is being paid but same tax rates as resident?
    Also is Health and Education Cess on aggregated tax rate?

    Reply
    • Dear Vivek,
      Tax rate is different than TDS. Yes, the second opinion is correct.

      Reply
      • Thank you so even NRI’s taxed at 15% for Short term and 10% for long term. No other taxes except additional 4% cess. Only difference is, it is deducted at source for NRI, and resident pay at filing return.

        Reply
  3. Respected sir,

    Please check my funds below. Please advice if they are good. Goal is 2 cr for retirement. current age is 36.

    Investment in each of the below is for 2,000 per months. Thank you.

    Reliance small cap
    kotak emerging equity scheme
    SBI bluechip
    aditya birla sunlife front line equity
    parag parikh long term equity
    RD – 7 years
    PPF

    Reply
    • Dear Shankar,
      What asset allocation you are following for this goal? Why RD for debt? Why two large cap funds?

      Reply
      • Sir, I am investing in mutual funds,PPF, PF and rd. Rd in case funds require urgently.

        Two large cap were taken more than 5 years back. Please advice what should I do? Thank you.

        Reply
        • Dear Shankar,
          You have to keep aside an emergency fund from your investment. Don’t club the both at first.

          Reply
          • Sure Sir. I understand that. Can you please advice me on the mutual funds? How are they? Thanks a lot.

            Reply
            • Dear Shankar,
              You can just retain two funds (One large Cap and include one Mid Cap).

              Reply
  4. Respected sir,

    I got my first job last month with a monthly take home salary of 20,000. I can save and invest 5,000 per month. My friend told me about your website.

    Can you please suggest what mutual funds should I choose? I think I am a mid level risk taker. My age is 23 and I want to build wealth. I want to have 5 crore rupees when I am 60 yrs old.

    Can you please help me sir and guide me while choosing right mutual funds?

    Best regards,
    Vivan Jha

    Reply
      • Respected sir,

        Thanks for the reply and sending me this link. Honestly I did not understand about the funds. Now I am more confused in terms of which fund should I choose.

        As I said that I am 23 and just got into a job. I can invest 5,000 every month.

        Sir, can you please help me and guide me which funds should I choose?

        Best regards,
        Vivan Jha

        Reply
        • Dear Vivan,
          Start with one fund like Equity Oriented Balanced Funds (HDFC or Franklin) and down the line after 1-2 years start to explore other types.

          Reply
  5. I read your blog and it is always helpful. Your tips on investing are excellent.

    I am investing in these 40,000 schemes from 2015. I am 27 yrs. old I want to accumulate wealth when I am 50 and goal is around 2 crore.

    I have done a lot of research before investing it. All are direct plans. I just want to evaluate my portfolio and need you help to understand your views.

    Kotak Emerging Equity Scheme – Mid Cap – 5,000
    Reliance small cap – Small Cap – 5,000
    Parag parikh long term equity – multi cap – 5,000
    SBI bluechip – large cap – 15,000
    Aditya birla sunlife front line equit – large cap – 10,000

    Reply
    • Dear Hitesh,
      What doubted your research? Where is your debt part?

      Reply
      • Hi, no debt funds for now. Do you think I should add debt fund for 23 years goal? What is your advice?

        Also, advice on my mutual fund mix?

        Reply
        • Dear Hitesh,
          Not debt funds but as per your comfort you must include debt portfolio. It is a must.

          Reply
          • Got it Sir. Which debt fund will you suggest? How are my these below funds? Please advice. Is the portfolio fine or should I change any? Thanks for the advice.

            Kotak Emerging Equity Scheme – Mid Cap – 5,000
            Reliance small cap – Small Cap – 5,000
            Parag parikh long term equity – multi cap – 5,000
            SBI bluechip – large cap – 15,000
            Aditya birla sunlife front line equit – large cap – 10,000

            Reply
            • Dear Hitesh,
              You just need one large cap and one mid cap. Why you holding so many?

              Reply
  6. For FY 2017-2018 (AY 2018-219) Can NRIs claim indexation benefit for LTCG (tax @ 20%) for debt mutual fund (e.g. SBI Debt Fund Series A-19, or ICICI Pru FMP Series 74 369 Plan I-G) ? Or, they have to pay tax @ 10% for LTCG. These funds were kept for more than 3 years. At redemption, as per account statement, no STT were deducted.

    Debt mutual funds and FMPs from AMC’s (like SBI, ICICI) are considered listed securities or unlisted securities for purpose of computation of LTCG ?

    Reply
    • Dear Manish,
      You can claim the LTCG on debt funds @ 20% with indexation benefit. Debt mutual funds and FMPs from AMC’s are considered as listed securities for the purpose of LTCG calculation.

      Reply
      • Thanks for your response.

        For tax purposes, can one chose indexation benefit @ 20% tax on few funds and no-indexation @ 10% tax for remaining ? Or, only one approach needs to be used for all funds ?

        Reply
    • Dear Rabindra,
      If your goal is just 5-6 years away, then stick to this fund.

      Reply
  7. Nice source of information, Basavaraj. One question, do you know if the DDT would be any different in case of ELSS dividend schemes? Is it going to be treated same as any other equity funds (with ~11.65% DDT at MFs)?

    Reply
    • Dear Biti,
      For taxation purpose ELSS and other Equity, Schemes are same. Hence, DDT is also same.

      Reply
      • Thank you!

        Reply
  8. Very informative. Wished how the income from mutual fund-pension scheme should be treated in case of redemption on maturity, without going for annuity, could have been discussed and the tax implications

    Reply
  9. Thanks , nicely illustrated with the example

    Reply
  10. For equity oriented MFs, how does DDT affect dividend reinvest plans when compared to growth plans or when people opt for monthly dividend plans?

    Are dividend reinvest plans the least efficient for LTCGS besides being the most difficult to track capital gains? Your comments/remarks would be valued.

    Reply
    • Yatin-DDT from equity also now taxable. Also, there is no logic in opting Dividend Reinvestment option.

      Reply
  11. Dear Sir,

    Good Day.

    As far as I understood that fund house directly deduct DDT and deposit to Govt. before paying dividend.
    1)Hence how individual will claim for this amount if its dividend income less than 1 lac in a year?
    2)will fund house deduction on dividend reflect in 26AS form to claim in ITR return?
    3) If fund house already deducting 10% before giving dividend then whats the point to make limit that after 1 lakh individual need to pay 10%.
    4) As fund house will directly deduct 10% then I think individual no need to pay any 10% LTCG Whether its dividend income in a year increase more than a 1 lakh.

    I appreciate if you could clarify my doubts. thanx

    Reply
    • Kapil-1) You have to show this under exempt income.
      2) NO as it is not TDS.
      3) and 4) Dividend income is different than the capital gain you receive from liquidating the mutual fund units. Hence, don’t confuse both and don’t combine both.

      Reply
      • Thanx a lot for such a quick reply. God bless you.

        Reply
        • Dear Sir,

          Good Day.

          If we choose Equity Mutual fund with Growth option , Do Fund house will deduct 10% on gain we occurred or they pay full value according to NAV .

          If your answer is yes that they pay full fund value without deduction then in my opinion I should switch from dividend option to growth option to avoid deduction by fund house.

          please reply. Thanx in advance.

          kapil

          Reply
          • Kapil-There is no concept of TDS in Mutual Funds for Resident Indians.

            Reply
            • Thanx for quick reply.

              Reply
      • Sorry for interjecting here. For Q1 by Kapil, and Basavraj’s terse answer here. Why is the question of DDT and the 1 Lac, figure together ? DDT is a kind of 10% income tax. And this income perhaps is not counted as exempt if I am not wrong. The 1 Lac figure is a deductible from LTCG and has nothing to do with dividend.

        And to add a personal opinion here, why should one be so touchy about paying the nation Re 1 for every Rs. 10 earned as dividend ? I know, there is a general fear of corruption at high places, but a nation runs on taxes. I feel proud to pay my taxes, and do not look askance at the doctor who just yesterday charged me Rs 400 in cash for a 5 second job to clear my ear wax.

        Reply
        • I mean, the dividend income should be tax free in my hand, and need not even figure in the ITR.

          Reply
        • Subha-Thanks for airing your views. But sad part is that many enter into equity with SOLE INTENTION that LTCG is tax free. For such people its like a big blow. However, such change of LTCG rule will hardly impact to long-term investors.

          Reply
        • subha-Everybody having different perception on same topic. If you would have gone to Govt hospital then it might cost nothing to clear your wax, but you have chosen your convenience to avoid long queue so you paid for it.
          Same here I am choosing what can be best investment , so if I am clearing my doubt then no body should have objection.

          Reply
  12. Sir l have 10years to retirement l can not decide to invest at ppf or elss Rs.20000/month which is better ?already I have deposited 10000/month at my gpf a/c .please suggest me where I will invest the money to form a large amounts.

    Reply
    • Uttam-You are comparing an orange with an apple. Both are different and you have to choose based on your financial requirement.

      Reply
  13. Hello Basavaraj,

    I have few questions, please clarify.
    1) We know about growth, dividedn options of a MF. what is the “Bonus” option of a MF?
    ex: Reliance retirement fund – Direct bonus (http://www.moneycontrol.com/mutual-funds/nav/reliance-rf-wealth-creation-dp-b-/MRC1794)

    2) Various Retirement MF like Reliance fund, HDFC fund etc have to be kept untill 58/60 years. Only then can one redeem the MF units. This was good for those people who were long term investor as these funds can also be used for tax saving as well (80C). These retirement funds were the only fund class apart from ELSS which came under 80C. But now with LTCG coming into effect, will these funds(i.e. retirement funds) loose their attractiveness. As there is no point in waiting for 15-20 or maybe 25 years to find the LTCG to be paid is HUGE.

    Reply
    • Ullas- 1) Regarding the BONUS option, there are no such types of Mutual Funds. Instead of referring such portals, better to check with concerned AMC portal.

      2) I’m not fan of a product which locks my money. Also, never invest in any asset or product just for the sake of taxation.

      Reply
      • Thanks for the reply.

        Also i heard that some of the AMC’s have started renaming MF names to adhere as per sebi categorization guidelines.Please let us know where we can find the latest/updated MF scheme names of various AMC’s. Or is it still work in progress.

        Reply
  14. Please guide me for investment in mutual fund for 15 year.
    Provide me list for mutual funds which can give best returns in future.
    give me suggestion for best funds for Large caps, Small Caps & ELS.

    Reply
  15. Sir,
    Can you please give an example of taxation (with tax rates) if I switch from Equity funds to Debt funds and then Debt funds to Equity Funds in single financial year starting from 1st April, 2018 as there may be three taxes applicable. for Understanding,

    First I will switch From Equity fund to Debt fund of same fund house, there will be STT. please advise if STCG will be applicable in this case.

    After remaining for some period (say 60 days), I will switch to Debt to Equity fund of same fund house. Hence again STT + STCG will be applicable.

    Also, please advise, if there will be exit load applicable if Debt Scheme or Equity Scheme mentions it.

    Reply
    • Neelam-Whether you are switching within the same fund house or different or you are using STP or SWP, the taxation will be same for the main fund from where you want to withdraw. Yes, you have to check applicable exit load and taxation for both debt and equity.

      Reply
  16. In the mutual fund taxation table for 2018-19 capital gain tax,
    Please clarify LTCG is 10% on gains above Rs.10,000 or Rs 1,00,000 the table is showing Rs.10,000/-

    Reply
  17. I have invested 10000rs in reilance liquid fund growth it became 10050 now if i withdraw there wil be any charges for this amount ? and I want invest in liquidit funds for 3 to 4 months. please explain me with example tax for liquid funds

    Reply
    • Rajesh-Refer above post properly. There will not be exit loads in Liquid Funds but the gain earned is taxable as per above post.

      Reply
      • I have read but I’m unable to understand taxation for liquid funds that’s y I asked for example.Please explain it

        Reply
  18. Hello Sir,

    I have a query on this. Say, I have invested Rs. 5 laks in Equity MF 2 years back and now the actual amount is Rs. 8 laks.

    I want to remain invested long in equity MFs, but just thinking about best strategy post LTCG.

    Strategy 1) Sell off and get around 8 Laks before 31st March, 2018. Reinvest that 8 Laks back in Equity MF in new financial year (i.e. April 1 onwards). I am assuming that, here I don’t have to pay any tax as I will be selling before 31st March.

    Strategy 2) Hold the investment as it is and Do nothing till the need arises.

    Kindly explain.

    Reply
    • Sachin-The LTCG is applicable from the gain of whatever you have from 1st Feb, 2018. Hence, I don’t think to liquidate and reinvesting exercise will be of great benefit for long term investors.

      Reply
  19. With new LTCG tax , i have some queries on the impact :

    1. What about Balanced funds – Initially they marketed as Debt part will enjoy the Tax free of equity portion. Now Balanced fund not considered as tax free. Is it better to Keep Equity and Debt funds as a separate investments

    2. Re-Balancing every year will attract the LTCG tax . What could be better strategy to handle.

    3. What will be the real return in the long term for Equity investments – 10% or 11 %

    4. What is the overall impact for goals – How much % we will be loosing for our goals. Like Retirement,Education goals.

    Reply
    • Kalai-1) But Debt taxation is cheaper to you than equity?
      2) It will attract. But you will not do the whole portfolio redeem right?
      3) I consider 10% to 12%.
      4) I am considering around 1% or less than that.

      Reply
      • If the long term returns are reducing 1% like this in the future , how do we manage to meet our goals.
        We need shelve out more for the goals. But there other importance in the family expenses which prevents to invest fully for the goals.

        Bit worried on Future goals. 🙂

        Reply
        • Kalai-Investment does not mean you invest today and get up when the goal reaches. Which one you adjust depends on you (return or investment).

          Reply
  20. Is LTCG tax applicable to NRI investors in mutual funds?

    Reply
    • Fazil-For all equity and equity-related investors this LTCG is applicable.

      Reply
  21. I am a Non-Resident Indian investing say almost last 4years in few Mutual Fund Plans(Equity oriented) in monthly SIP-Direct mode. Suppose I don’t redeem any unit till my goal-fulfillment, in that case do I need to fill up and submit I-T returns showing the yearly capital gain/loss arising of my investments in the funds ?? Or only when I redeem in future that time the I-T returns to be submitted. I don’t have any other Indian Income exceeding the tax-free limit. Please do clarify me.

    Reply
    • Pulin-Taxation in Mutual Funds will come into picture when you redeem but not on yearly basis.

      Reply
      • Basavaraj,Thank you very much clearing the clouds !!!

        Reply
    • As the LTCG will be grandfathered as on 31.1.2018, does it make sense that one redeems all the equity/balanced mutual fund investments(which are invested for more than 1 year) and then buy once again to minimize the future outgo in LTCG. Thanks for your considered opinion

      Reply
      • Bala-In this circus, the only benefit for you is that whatever the from 1st Feb 2018 to 31st March 2018 also be taxed. However, gain prior to 1st Feb 2018 anyhow tax-free even if you withdraw post 1st April 2018.

        Reply
        • Thanks a lot for the clarification. Is there any deadline such as 31 June 2018 upto which the grandfather scheme is applicable or Is it indefinite? For example what ever investments made before 31st Jan 2018, the gain upto 31st Jan 2018 will never attract LTCG @10% irrespective of one redeems after 1 or 5 years?

          Reply
          • Bala-YES. The LTCG counting starts from the gain you earned from 1st Feb 2018.

            Reply
  22. The Sensex and Nifty suffered a bloodbath today, tracking a selloff in global equity markets. Overnight, the Wall Street suffered its biggest intraday decline in history. The Dow Jones Industrial Average ended with a loss of about 1,200 points – nearly 4.6 per cent. Shares in other Asian markets were also under strong selling pressure, with Japan’s Nikkei down about 5 per cent. The Sensex fell as much over 1,200 points to 33,482 while Nifty tumbled below 10,300. The rupee also fell to 64.38 against US dollar, as compared to Monday’s close of 64.06. More to follow , at least another 2000 to 3000 points.now please tell how these returns are safe secured and will give you assured returns of minimum 12%and more.

    Reply
    • Rajan-Who said that it is 12% ASSURED RETURNS? Also, if you can’t digest such ups and downs of the equity market, then simply stay away.

      Reply
  23. Sir I have one lakh to invest in lump sum n then around 2000 in sip , I looking for tax saving as well long term growth benefits. Kindly advice..with specifics if possible.
    Thanks

    Reply
  24. Well explained article. What is your recommendation for investment strategy post 2018 budget? I still equity mutual fund is the best option to earn a decent return better than FD’s?

    Reply
    • Balasubramanian-Equity is BEST over FD if you have a long-term view with proper asset allocation.

      Reply
  25. really a nice post. Thanks to the author for sharing.

    Looking forward to your next post.

    Reply
  26. Dear Basavraj,

    One question : The DDT on equity MF and stocks will be @10 %. The TDS on my FD interest is also 10 %. But the later shows up in my Form 26AS, and refunds are calculated automatically from my income slab (5%). What will happen with dividends? Will they show up in 26AS ? Any clue ? Thanks in advance.

    Reply
    • Subha-Dividends are payable to you by mutual fund companies after paying the DDT directly to Government. Hence, whatever dividend you receive is post tax returns. Hence, no question of mention in Form 26AS. I know why you asked as Banks and MF companies pay tax to Govt. But in case of banks it is mentioned in TDS certificate but not in case of MF. But do remember that in case of FDs, the taxation actually depends on your actual tax slab. They deduct the marginal tax and show it in Form 26AS for further taxation of an individual. However, in case of MF DDT, it is fixed @ 10% for equity.

      Reply
      • I know, but then I normally declare my dividends under “exempt income”, where do I have to declare them now (ie 2019 APR). They will perhaps change the ITR form again. Lots of bugs show up in them. The bugs were there last year too. Jai India, our govt has progressively showed up as a canny businessman. Gone are the days of 1980s. The govt is now learning to grow octopus like tentacles. I look left, her hand is in my right pocket. I look right, her hand is inside my left pocket.

        Reply
  27. if i transfer my saving bank balance in liquid fund for few days and then take it back will i have to pay tax ?

    Reply
    • Ajay-Yes. Liquid funds also considered as other debt funds. Hence, you have to pay the STCG (in your case).

      Reply
  28. I have invested in Franklin india bluechip fund – dividend reinvestment option. Is the DDT applicable for Reinvestment option also or is it only for payout option? Do you recommend me switching to Growth option instead of dividend reinvestment option?

    Reply
    • Rajnesh-YES DDT is applicable for reinvestment option also. I am not sure why you selected this option when your intention is to accumulate.

      Reply
  29. Hello Sir!!
    Thank you so much for all of your excellent articles.
    I realized that equity oriented fund of funds and international equity funds are treated as debt funds for taxation. So, should an investor with long term time horizon invest in equity oriented fund of funds so that he / she can get 20% tax with indexation benefit? Can you please elaborate on what are fund of funds?

    Reply
    • Rajnesh-20% with indexation is better or 10% without indexation benefit? Above that, if your concern is TAX while investing rather than the performance of fund or asset, then use debt product like PPF.

      Reply
      • Sir, Actually I am not clear with what is indexation. I thought indexation will bring down tax by a large margin. Can you please explain?

        Reply
        • Rajnesh-I can’t explain that fully in the comment section. But what I am trying to say is, never invest in any product just for the sake of TAX.

          Reply
  30. If I have a SIP of Rs 5000/ month in equity does it attract tax if I redeem after one year or only if i gain above Rs 100000

    Reply
    • Deepa-LTCG Tax will be applicable once you redeem and the gain from such redemption is more than Rs.1,00,000.

      Reply
  31. Nice article. I receive monthly dividend under dividend payout option from HDFC Prudence fund.
    From now on am I pay to DDT tax or Fund house will deduct at source?
    Also am I to pay STT or will be deducted at source itself?
    Is there any limit upto which dividend income from MF units is exempted

    Reply
    • Venkata-DDT will be payable by Mutual Fund Companies itself. There is no such threshold limit for the applicability of DDT.

      Reply
  32. Dear Basu,

    With 10% Long term capital gains tax introduced on equity shares and Mutual Fund (MF) units, will the MF unit holders ultimately pay LTCG twice? First 10% by the Mutual fund AMC company when they sell underlying shares and then 10% by the MF investor when they sell MF Units?

    Thanks
    Sid

    Reply
    • Sidhesh-That AMC cost of taxation is inclusive in your expense ratio. Hence, I don’t think that will create a huge differentiation and a big factor.

      Reply
  33. Sir now which will be better to invest sip or ulip

    Reply
  34. Hi Basu,
    Nice Article as always

    I have one question how this will differ ( I assume the status changes every year )
    could you please elaborate the below line

    # Your Residential Status-Resident or Non-Resident (NRI)
    Your tax will be based on your residential status. If you are resident then the taxation rules will be different and if NRI then it differs. Hence, first, you have to make sure of what is your residential status.

    and I think one Zero is missing in the first table
    “Mutual Fund Taxation FY 2018-19 -Capital Gain Tax Rates”

    Reply
    • Venkat-The TDS rules apply if you are NRI. I will update that later.

      Reply
  35. Hi Basu,
    Excellent article from you. I was waiting for this form yesterday after budget. You try to make understand all things in simple way possible with basics and really good. I am following u from past one year. I get many questions but before posting i check comments/question from others where most would have been already answered.

    Reply
  36. Nice articles. I m following you from last 2 years.

    But how LTCG will be applicable for sip?? Can you please show by giving example??

    Reply
    • Pranav-It will be like FIFO (First In First Out). The units which complete one year are considered for LTCG and rest others for STCG. Let me know if you still have doubts.

      Reply
  37. Sir,

    Nice Information…But Looking for the Tax Rate on ELSS MF dividend.

    -Suraj Naik

    Reply
  38. Hi Basu
    I have been doing SIP into ICICI Equity arbitrage fund as a part of emergency fund (main part of emergency fund is-liquid fund), only from the tax advantage view. what would be the strategy post LTCG tax? can arbitrage fund still be used as an alternative to liquid fund, if time frame is longer(kind of permanent funds,no idea to withdraw in normal course ). TIA

    Reply
    • Suru-Can you avoid tax by switching from Arbitrage Fund to Debt products like Debt Funds or FDs? The answer is NO. Hence, better to stick to your basics.

      Reply
      • Yeah true. Taxation on Indexed debt LTCG vs unindexed equity LTCG.

        Reply

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