Categories: Mutual Fund

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.

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.

 

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.

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.

 

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.

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.

 

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

Refer my latest posts related to mutual funds-

BasuNivesh

View Comments

  • 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?

  • 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?

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

      • 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.

  • 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

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

      • 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.

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

  • 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

      • 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

        • 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.

  • 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

      • 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?

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

          • 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

  • 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 ?

    • 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.

      • 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 ?

  • 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)?

  • 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

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BasuNivesh
Tags: Mutual Fund Taxation FY 2018-19
8 years ago

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