Finally, the budget is out and let us now discuss on what is Mutual Fund Taxation and what are the tax rates for FY 2016-17 of AY 2017-18.
First let us understand of what are the factors that determine the Mutual Fund Taxation. The three major part of this are as below.
- 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.
- 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– Holding period for Equity and Debt Funds will be different for taxation purpose. For equity funds holding period more than a year is called long term. If holding period is less than a year then such equity mutual funds holding period is considered as short term. Whereas in 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.
I tried to explain the same in below image.
Now, let us move forward and see how STCG (Short Term Capital Gain) and LTCG (Long Term Capital Gain) are taxed in India for Mutual Fund for FY 2017-17.
There will be TDS applicable only to NRIs. Below are the TDS rate for NRIs for FY 2016-17.
Along with regular STCG and LTCG, one has to pay STT (Security Transaction Tax). This will be as per below for FY 2016-17.
The changes to this is marked in red. Rest of STT are same as they are for previous year. This change was done in Budget 2016.
Hope above information, is enough to understand how the Mutual Fund Taxation works in India for FY 2016-17.
View Comments (122)
Thanks Basu for this insightful article.
I received a capital gain statement when I sold my equity MF after holding for more than 5 years or so. It shows LTCG with indexing as well as without indexing. Now I understand that LTCG from equity mutual fund is tax exempt. But slightly confused as to which amount should I show in Exempt Income section while filing ITR (the one in LTCG with indexing column or the one in without indexing)?
Thanks
Vaibhav-Without indexing. You must show this in exempt income field.
Thanks Basu. Yes am gonna show that in the exempt field.
Sir, i sold one of my MF with icici prudential. They tell me that 1% tds will be deducted from the total value. why do they deduct 1%?? they said there is a notification in 2015 regarding the same. They did say they will give me the tds certificate but still im not sure about them. Kindly clarify regarding the same. Thanks
Rahul-I think the product you invested is not MF but Life Insurance Product. Check properly at first. There is no concept of TDS in MF.
dear sir,
many thanks for your valuable suggestions. i have 2 quires.
a)i made a partial withdrawal in a Mutual Fund (equity) within 1 year in FY 2016-2017. is it taxable?
b) is LPG refund taxable in FY 2016-2017?
Thanking you and looking for your early reply.
Kaushiki-a) YES as per above rule.
b) NO.
dear sir,
many thanks for your early reply and wish you a very happy and prosperous new year.
thanks
Kaushiki-Pleasure and same to you too.
Hi Basu,
I had started my two SIP at Nov 2014, and due to some urgent need i had to withdraw the money till DEC 2016,
which is two year from start date.
Is a single SIP amount monthly should be completed one year to avail the tax benefit , Please provide your input.
Thanks,
Shalabh
If I am not under tax bracket,Then the STCG made from debt/bond funds is taxable?
Nikhil-If your total income including STCG is not beyond Rs.2,50,000, then your tax liability is zero.
Hi Basavaraj
What would be the capital gains in case of fund-of-funds like Franklin India Feeder - Franklin US Opportunities Fund? I presume fund-of-funds are treated differently. Please educate us on the taxation for both Short term and Long term capital gains of such funds.
Regards,
Antartica
Antartica-Fund Of Funds are treated as debt funds for taxation purpose.
Dear Sir,
I am an NRI. I want to invest some money in debt fund for long term (more than 3 years). I have the following questions.
1) Is it beneficial to keep the money in debt fund than FD.
2) How 20% indexation is calculated.
3) Whether tax deducted can be redeem if my total income is less than Rs300000.
4) Liquid funds are also under the category of debt funds.
Vinay-1) Yes, in your case.
2) Search in Google. You find enough examples. Because I can't explain the whole calculation in commenting.
3) There will not be TDS in mutual funds.
4) YES.
Dear Basavaraj,
I am an NRI and had invested in SUNDARAM CAPITAL PROTECTION ORIENTED FUND 5YRS SR4 GROWTH which is matured as on 8th Dec. I noted that they have deducted CGT at source. Please advise if I can claim back based on foregoing.
In the illustration above you have stated that TDS is applicable to NRIs and provided the rates. However in your answer 3 to Vinay's queries you have stated that "There will not be TDS in mutual funds" Please clarify
Hareesh-You can file your IT return and if there is no tax liability then you can get back the CGT what MF deducted. I replied to Vinay in mindset that he is resident Indian. But TDS applies to NRIs.
Dear Basavaraj-Thanks for instant response with clarifications. Since no other resident income to declare, I am not filing the tax returns for quite sometime now. In such cases can I request AMC to refund the tax?
Hareesh-They will not refund. Refund will be from IT Dept ONLY. Hence, by showing this income, you have to file IT return. Based on the tax dues, if the TDS is more then IT Dept will refund it.
dear sir i believe that there would be TDS at higher rate ,if he is investing IN MUTUAL FUND as NRI ,whatever be tax slab.you have to file return to get refund if any
warm regards
Yashpal-For NRIs the TDS is there. No doubt in that. Even for other products too. Sorry I not read is residential status.
dear sir ,i have purchased five bhavisya nirman bond,floated by NABAD in 2009.in their prospects it was shown as it is zero coupon bond and indexation would allowed for tax beneifit .is this right.but in tax form itr it is shown as zero coupon bond with 10% tax.what is right.if this is right can gain can be adjusted with long term loss of debt mutual fund.bonds are maturing in march 2019
Yashpal-It is 10% with indexation benefit for LTCG. Do you have long-term capital loss from debt mutual funds?
sir i have LTCG loss in debt mutual fund,but idon,t see B3 column ITR-2 i.e cost of acquisition with indexation .THERE IT IS WRITTEN as without indexation
warm regard
Yashpal-Refer the changed LTCG rules for Debt Funds. Now the LTCG taxation is with indexation at 20%.
sir you mean to say that zero coupon bond floated by NABAD are like debt mutual fund for taxation purpose and their LTCG can adjusted with LONG TERM LOSS of debt mutual fund
warm regards
Yashpal-YES.
sir thanks for your reply,but why 10% without indexation coulmn is provided in ITR2 ,in case of zero coupon bond if it is not applicable now.
warm regards
Yashpal-That was old update.
dear sir, in FY 2015-2016 i made a profit of rs. 5000 by selling a debt fund after 4 years and the fund house has deducted rs. 500. is it O.K?
dear sir, they said it was a LTCG & as per present rule they deducted the amt.
Kaushiki-But there is no such law to deduct TDS from MF funds. Are you an NRI?
dear sir, i am not a NRI. but my question is how LTCG is calculated at the time of redemption of a debt MF? in the ready tax reckoner of a MF house it is mentioned that LTCG is 20% with indexation + 15% Surcharge+ 3% Cess= 23.690% on listed securities.
does it means that TDS would be deducted @ 23.69% at the time of redemption?
pl. clarify the matter clearly
Kaushiki-Forget about rate, if you are not an NRI, then there is NO TDS. First ask that to them.
dear sir, many thanks for your early reply. now i have a question to you. if i want to invest a lump sum amt. of money at present for 2 yrs. then what would be the best option and why - BANK FD OR A DEBT FUND? if it is a debt fund then suggest one or two.
have a nice day and enjoy yourself.
Kaushiki-Refer my old post "10 best short term investment options in India".
dear sir, as i was a professional teacher once upon a time i am very much impressed with your analysis & simple explanation.
now i am requesting you to clear the concepts of NCD, CORPORATE BOND FUND, FMP, etc. in details as these are not clear to me. what are the differences among them?
recently i have invested in SREI INFRA NCD 2016 & INDIA HOUSING FIN. LTD. NCD 2016. am i correct? can i sell it at the time of listing?
Kaushiki-Let me write on all those products separately. Regarding your NCD, refer the product feature closely.
Kaushiki-Why the AMC deducted Rs.500??
SIR I INVESTED IN MF AS PER DETAIL BELOW
NOV 14 = 200000 WITH NAV 35.48
SIP OF 5000 FROM DEC 14 TO SEP 15 = 50000 ( WITH DIFF NAVS )
REDEMPTION FULL WITH NAV 35.50 AMOUNTING TO 246170 ( LOSS OF 3830)
IS THERE ANY TAX LABILITY
Rajinder-Without knowing which type of fund it is, how can I guide you?
SIR, IT IS BSL PURE VALUE GROWTH REGULAR FUND
SIR I REDEEMED ON OCT 2015
Rajinder-Units which completed 1 yer are considered for LTCG and more than that are STCG. If you booked losses, then the rules will be "Short Term Capital Loss (both from equity and debt) can be set off against Short-Term Capital Gain (both equity and debt) and for long term capital gain (only debt)".
Rajinder-I am asking you types of funds.