Capital asset typically refers to anything that you own for personal or investment purposes. It includes all kinds of property; movable or immovable, tangible or intangible, fixed or circulating.
Capital assets are further classified as Financial Assets and Non-Financial Assets. Financial assets are intangible and represent the monetary value of a physical item. Stocks (Shares) and mutual funds are the best examples of Financial Assets.
The profit (if any) that you make on your mutual fund investments when you redeem or sell the MF units is referred to as Capital Gains. It can be a Short Term Capital Gain (STCG) or a Long Term Capital Gain (LTCG) depending upon the ‘Period of Holding’. The tax that is applicable on these profits is known as ‘Capital Gains Tax’.
In this post let us understand: What are the factors that determine the tax status of mutual funds? – What are the tax implications on mutual fund investments? – Mutual funds taxation & capital gains tax rates on mutual funds for Financial year 2017-2018 (Assessment year 2018-2019).
Factors determining the tax status of mutual funds
The capital gains tax on mutual fund withdrawals is based on the factors as below;
- Residential Status
- Fund Type (whether the fund is an Equity-oriented fund (or) a Non-Equity Oriented Fund)
- Holding Period (Duration of your investment)
1. Residential Status & Mutual Funds Taxation
The capital gains tax rates are determined based on the residential status of an individual / investor. Residential status can be either ‘Resident Indian’ or ‘Non-Resident India” (NRI).
2. Type of Funds & Mutual Funds Taxation
What are Equity-oriented Mutual Funds? – MF schemes that invest at least 65% of its fund corpus into equity and equity related instruments are known as equity mutual funds. Examples are : Large cap, Mid-cap, Balanced funds (equity oriented), Sector funds etc.,
What are Non-Equity Mutual Funds? – MF schemes that hold less than 65% of their portfolio in equities and equity related instruments are known as Non-Equity Funds / Debt funds. Examples are : Liquid Mutual funds, Money Market funds, Gold funds, Infrastructure debt funds, Balanced funds (Debt oriented) etc.,
3. Period of Holding & Capital Gains on Mutual Funds
Capital gains on Mutual funds could be either long term capital gains or short term capital gains, depending on your investment horizon.
- Long Term Capital Gains
- If you make a gain / profit on your investment in a Equity Mutual Fund scheme that you have held for over 1 year, it will be classified as Long Term Capital Gain.
- If you make a gain / profit on your investment in a Non-Equity Mutual Fund scheme (or in a Debt Fund) that you have held for over 3 years, it will be classified as Long Term Capital Gain.
- Short Term Capital Gains
- If your holding in a Equity mutual fund scheme is less than 1 year i.e. if you withdraw your mutual fund units before 1 year, after making a profit, then the profit will be considered as Short Term Capital Gain.
- If you make a gain / profit on your Debt fund (or other than equity oriented schemes) that you have held for less than 36 months (3 years), it will be treated as Short Term Capital Gain.
Capital Gains Tax Rates on Mutual Funds for FY 2017-18 (AY 2018-2019)
Capital Gains Tax Rates on Mutual Fund Investments of a Resident Indian are as below;
- The STCG (Short Term Capital Gains) tax rate on equity funds is 15%.
- The STCG tax rate on Non-Equity funds (or) Debt funds is as per the investor’s income tax slab rate.
- The LTCG (Long Term Capital Gains) tax rate on equity funds is NIL.
- The LTCG tax rate on non-equity funds is 20% (with Indexation benefit)
Capital Gains Tax Rates on NRI Mutual Fund Investments for the Financial Year 2017-18 (Assessment Year 2018-19) are as below;
- The STCG tax rate on equity funds is 15%.
- The STCG tax rate on Non-Equity funds (or) Debt funds is as per the investor’s income tax slab rate. (Tax Deducted at Source – TDS @ 30% is applicable)
- The LTCG tax rate on equity funds is NIL.
- The LTCG tax rate on non-equity funds is 20% (with Indexation) on listed mutual fund units and 10% on unlisted funds.
Mutual Funds Taxation Rules on Dividends
- Dividends on Equity Mutual Funds : The dividend received in the hands of unit holder for an equity mutual fund is completely tax free. The dividend is also tax free to the mutual fund house.
- Dividends on Debt Funds : The dividend income received by a debt fund unit holder is also tax free. But, the mutual fund company has to pay a dividend distribution tax (DDT) before distributing this dividend income to its Unit-holders. DDT on Debt Mutual Funds is 28.84%.
NRI Mutual Fund Investments & TDS Rate
Below are the TDS rate applicable on MF redemptions by NRIs for AY 2018-19.
Budget 2017-18 Update :
Base Year & Indexation : The base year for calculation of Indexation is going to be 2001. It will have an affect (mostly positive) on investments where indexation benefit is available when calculating Capital gain taxes.
- For example: Suppose you are holding on to your investments made in debt funds (or) Property before 2001, the Fair Market Value (NAV) as on 1 st April, 2001 will be considered as cost of acquisition for calculating capital gains. This will help the investor to reduce the capital gains taxes.
- As of now, the base year is 1981. To calculate the capital gains at the time of selling any property purchased before 1981, its purchase price is now calculated on the basis of the fair market value of 1981. Calculation at the fair market value of 2001 will increase the cost of acquisition and lower the capital gain.
Budget 2018-19 update :
As per the existing tax rule, equity investors need not pay any tax on long term capital gains. If investments in equity mutual funds or Stocks are sold within a year, gains will be treated as short term capital gains and taxed at 15 %. The finance minister in his Budget 2018-19, has proposed to tax long term capitals gains of over Rs 1 lakh at 10% without indexation benefit. For more details, kindly go through my latest article, click here….
Hope this post is informative. Do you check your capital gains statement(s) every year? Do you include your capital gains taxes (if any) in Income Tax Returns (ITR). Share your comments.
Continue reading :
- Income Tax Deductions List FY 2018-19 | List of important Income Tax Exemptions for AY 2019-20
- Mutual Funds Capital Gains Taxation Rules FY 2018-19 (AY 2019-20) | Capital Gains Tax Rates Chart
- Different Asset classes (Stocks, Real Estate, Debentures, Gold etc.,) have different Tax implications – How are Investment Returns taxed?
(Assumption – STT (Securities Transaction Tax) is payable) ( Image courtesy of Stuart Miles at FreeDigitalPhotos.net)
Best Mutual Funds 2018-19 | Top Equity Funds post SEBI’s Reclassification
Budget 2018 LTCG Tax on Equity Mutual Funds & Important Implications
Income Tax Deductions FY 2016-17 : List of important Income Tax Exemptions for AY 2017-18
I need a clarification of LTCG:Debt funds.
I have invested a sum of Rs 5000000 in a short term fund. I also set up a monthly with drawal of Rs 40000 for a period of 3 years. up on completion of the 3 year period I had redemmed my investment in the fund. Now advise me as I had withdrawn Rs.14.8 lakh in total only from my principle amount what is the tax implication.
Dear Jayaraman,
For each monthly withdrawal , you need to calculate the Gains (Short term / long term) and pay the taxes accordingly.
The same is applicable on total units redemption .
Latest article :
Mutual Funds Capital Gains Taxation Rules FY 2018-19 (AY 2019-20) | Capital Gains Tax Rates Chart
SHORT TERM CAPITAL GAIN TAX ON DEBIT MFIF INDIVISUL IN 30%TAX SLAB WHETHER 15%OR 30%
Dear Radheshyam,
STCG from the sale of equity shares or equity oriented mutual funds on which STT is charged on sale transaction are taxed at 15.45% (including education cess) instead of your normal slab rates. So if you are an individual who comes in the 10% tax bracket, then you would have to pay more on these gains, but if you fall in the 20% or 30% tax bracket, then this special rate of 15% is beneficial for you.
Also, you cannot avail any deductions under Chapter VI-A (like deduction under Section 80C, 80D, etc.) from these gains. Further, the relaxation of reducing your capital gains amount in case your total taxable income is less than the minimum exemption limit of Rs 2,50,000 is also available.
sir
in IT FORM 2 which section will i use for entering TDS done by mutual fund house on my NRI debt fund as tax on STCG.
Dear srpal,
You need to provide TDS details under TDS Schedule (column).
iam nri equity STCG DEDUCTED at 15% that amount 2 lakh which is less than 2.5 lakh as I don’t have any indian income can I get equity stcg back if I submit return
Dear vasu ..Yes, you can claim it as Refund (if any) by filing ITR for the respective Assessment Year.
No indexation benefit on LTCG on debt mutual funds. Please check properly. Please read Sec 112 repeatedly. Thanks.
I have STCG of Rs 3000 for Debt Fund this year. I have about Rs 50000 STCLosses (for equity MFs) carried forward till last year. Can the STCG from Debt Fund Rs 3000 be adjusted against the STCLosses of Rs 50000 and Rs 47000 (50000-3000)carried forward for the next year? Or I have to add this in my income and pay tax as per my slab?
Dear Bhaskar,
Yes, I believe that you can set off the STCL with STCG.
Related article : How to set-off Capital Losses on Mutual Funds, Stocks, Property, Gold, Bonds & Debentures?
If my income is rupees 270000 including STCG from debt oriented mutual fund of rupees 30000 than how much tax i have to pay?
Dear Ankit ..You may kindly use the income tax calculator available at this link…
Hello Mr Reddy ,
I am an NRI with a house in India which I rented (35000 per month ), I also have housing loan for same house ( completed 6 years of repayment and 9 years to pay (about 19lahks) ) I also pay Income tax because of rent.
Now My question is I have 20 lakhs to payback loan .
1. Should I payback loan ? and save interest of loan
2. Whatever I get rent I want to invest in MF ( Please note I am new to MF market )
3. Calculating all risks and investing in little safe funds after 10 years what percentage saving I can see after 10 years ) ? OR JUST INVERT 20LAKHS IN MF
4. Can I reduce IT return paymets with this idea?
5. If at all I have to do gain , calculation for loan against MF how to do , pls expain with exxample pls
Dear rumesh,
May I know your other important financial goals and their time-frames?
thank you ,
To be frank as of now I do not hv time frame just save money smarter.
Dear rumesh,
Then, you may invest in equity oriented funds.
Kindly read :
FATCA Compliance for MF Investments.
How to get cKYC done?
You may opt for ELSS funds and can claim tax deduction u/s 80c.
Read :
Best ELSS Funds
Best Equity funds.
I will consider your advice.
As I decided to close house loan and invert my house returns in MF ,
As I understand I can get tax reduction only upto 1.5 lakhs of inverstment. Correct?
Remaining I have to invert in EQUITY with moderate risk. Please confirm ?
Umesh
Dear rumesh,
Section 80C limit is Rs 1.5 Lakh.
Kindly read : List of income tax exemptions for FY 2017-18.
If you would like to take moderate risk, you may consider equity oriented balanced funds for medium term (say for 5 to 10 years).
Hi Sreekanth, please let me know the tax implication of these funds when I sell them..
Birla SL Savings Direct-G
DHFL Pramerica Ultra Short Term Direct-G
ICICI Pru Long-term Direct-G
From your post I figured it will be “as per individual tax slab” if I sell it with in 3 years and 20% when I sell it after 3 years. Is it applicable for FY 16-17 as well ?
Is this applicable for all my 3 funds ?
Dear Boopathi,
Birla Sun Life Savings Fund & DHFL fund are Debt funds (Ultra short term fund).
ICICI Prudential Long Term Fund is also a Debt fund (Dynamic bond fund).
Yes, your understanding is correct and yet its applicable for FY 2016-17 & also for FY 2017-18 as well.
Really thanks for the quick response and your appreciative information.
But one thing i want to clear that if someone not falling under any of the tax bracket means less than 2.5 lakhs invests 5lakhs or more from past savings in LT debt fund therefore capital gain should be taxed at 20% with indexation.so what he do at the time of redemption,will he have to file IT return or nothing to do as because he doesn’t fall’s under IT bracket.hope u understand my question.Also give some review for sbi Magnum balanced direct growth fund for 3 or 5 years.
Dear Dipak ..If your only source of income is STCG on debt mutual funds, and if it is less than basic exemption limit then tax on STCG is not applicable.
Dear Sreekanth,
I have the ICICI ULIP policy (lifetime) which was started from 1st Jun 2006 and I was paying till 2016 (10 years and 3 months – Monthly 2000 123 months 123×2000 = 246000). The current value looks good. Policy status is in force. Fund value is 437525 and capital gain is 191525. If I surrender this policy, will there be any tax for long-term capital gain? Can I get the full amount if I surrender the policy? My understanding was there would be locking period for my last three year’s monthly EMI (Rs.2000 each month) Because I had claimed for tax benefits and I could able to claim till completed lock in periods (7 years). Please advise.
Dear Rajendran,
As you have completed five years, there will be no surrender charge and the surrender value will also be tax free. The surrender value of ULIP is otherwise added to your income and taxed as per applicable slab rate if surrendered before five policy years.
Kindly read : Tax benefits can be revoked.
Thank you sir for the quick reply and guiding me. I will keep visit your websites and also share with my friends. Thank you once again for the service.
SIR I WANT TO KNOW THAT WHETHER AMC DEDUCT ANY TAX ON CAPITAL GAINS OR WE HAVE TO INFORM ABOUT THAT TO IT DEPARTMENT WHILE FILLING RETUNS.
ALSO WANTS TO KNOW,
1-IF ANYONE NOT FALLING UNDER IT BRACKET I.e. 250000.
WHICH OF THE CAPITAL GAINS IN ABOVE TWO CASES ARE TAXED AT 20% WITH INDEXATION.
3-IF ANYONE NOT FALLING UNDER IT BRACKET BUT INVESTS 4 TO 5 LAKHS AND CAPITAL GAINS TO 3LAKHS DOES IT IS TAXABLE AT 20% WITH INDEXATION.
OVERALL MY QUESTION IS 20% TAX TAX ON LONG TERM CAPITAL GAIN FROM DEBT FUNDS ARE RELATED TO INCOME TAX BRACKET OR IT IS RELATED TO AMOUNT OF INVESTMENT WITH THE AMOUNT OF CAPITAL GAIN RECEIVED.
SORRY FOR THE AWKWARD QUESTION.
LOOKING FORWARD TO GET YOUR KIND INFORMATION.
Dear Dipak,
If you are a Resident Indian then Mutual Fund houses will not deduct any TDS on redemption of MF units. The investor has to calculate the taxes (if any) on Capital gains (if any) and need to disclose it in his/her Income Tax Return.
The LTCG on sale of Equity funds are tax-exempt and can be reported under ‘Exempt Income’ section of ITR.
1 – 20% with indexation is levied on None-equity funds LTCG.
2 – It is not related to income tax bracket. The tax rate on LTCG on debt funds is 20% with indexation.
Dear Srikanth,
I need a financial advice for my father. My father is 59yrs old and he wants to invest 5lakh lump sum as onetime investment, so that my mother will get 10-15k/month as income after his demise. Could you please advice on where should he invest? on whose name (Father/Mother) the investment is adviceable?
Father’s age-59yrs, self-employed.
Mother’s Age- 54yrs, House wife.
I hope you would do the needful, Thanks in advance.
Dear Prasad,
So, the income is not required now??
If he is not dependent on this corpus amount, he may consider depositing in Post office MIS Scheme in the name of your mother. (max allowed is Rs 4.5 Lakh).
Dear Sreekanth,
Thanks for your suggestion.
Yes, my father doesn’t need the corpus amount. isn’t the interest earned taxable in Post office MIS plan?
What is your suggestion on splitting 5lakh and invest in Balanced Mutual funds like HDFC Prudence Fund and ICICI Balance funds which have an option of Systematic Withdrawal Plan (SWP)? is profit on these funds taxable? are there any better SWP plans? If my mother starts withdrawing the monthly income after 5yrs, will she get the target income of 10k/month with these plans?
Dear Prasad,
Yes, it is a taxable income.
We can not predict the returns on equity oriented funds.
Better suggestion is, if regular income is not on immediate basis, your father can invest in balanced funds for next few years (in your mother’s name), let the wealth grow, after few years you can take call to set up SWP in the same funds (or) switch to little bit safer options and then set up SWP.
Dear Sreekanth,
Thank you very much for your advise. I really appreciate your valuable suggestion and time. Could you also please suggest me the best balanced funds? Which you think will do good in next 5 yrs?
Dear Prasad ..We cant predict the future, but we can shortlist the consistent ones based on their long term track record.
You may consider funds like HDFC balanced fund, TATA balanced fund, SBI or ICICI Balanced funds..
Thank You very much.
I am gonna invest in Kotak tax saver fund with a 2o year horizon.
Is this a good fund to start an SIP.?
8k per month
Dear rajeesh ..There are better funds than this fund.
Kindly read : Best ELSS tax saving funds for FY 2017-18
I recently tarted 4 SIPs, 3 1k and another 2k with bluechip corporate india as the broker, i had no knowledge of Direct and Regular Plans , thanks to ur blog i have come to know of this , i had also given the OTM mandate for monthly deductionthe first SIP has been deducted and , now my question is can i switch to direct plan from regular plan? and i believe as part of STCG 15% of tax needs to paid on the gains as i am still in the starting stage i can risk switching over and can escape with least damage…what is your view sir ? and can i continue the SIP with the same portfolio Number by from the website of the AMC ??
All of them barring one ELSS are in equity
Dear Chaitanya ..Yes, you can switch and can invest in Direct plans under same folio, (yes, subject to taxes on CG). ELSS units you can redeem, so you can stop future SIPs and opt for Direct plan for future SIPs.
Very well explained. Thank you for this article.
STCG on redemption of Liquid Fund is to be shown under “Income from Other Sources” or under ” Income from Capital Gains I schedule in the I T Return.
Dear Rakesh ..Its income from CG section..
Thanks Mr Sreekant
Hello Sreekanth ,
Wish you good luck for this blog.
I am a NRI and want to invest in mutual funds. Their are so many MF plans in the market. Please guide me to
A. invest in a tax free mutual fund (1) short term MF (max 2 years @ low risk high return) (2) Long term MF (maximum 20 years @ low risk high return).
B. How i can do the paper work while working out of india ?
C. How to select a Perfect MF based on their history as per our retirement goals ?
Thanks
Dear Pritesh,
A – Minimum lock in period of a Tax saving ELSS fund is 3 year.
Red:
Best ELSS MFs for FY 2017-18
Best Equity funds 2017.
B – Is your PAN KYC compliant? Are you an USA based NRI?
Read:
What is cKYC?
What is ekyc?
What is FATCA form?
c – Read :
How to select right mutual fund scheme?
Retirement goal planning..
dear sreekanth,
i am NRI and residense in middle east. i have started investment in mutual fund and i am looking to invest in liquid fund with dividend re investment option could u advise me if in case of redemption after three month do i need to pay tax for stcg or it will deduct at a time of redemption . as my status is nri so i m not filing any it return . if in case is not deducted do i need to file return . your quick response for the above would be highly appreciated.
Dear Rahul,
TDS is deducted in your case. It is a taxable income.
Read:
Do I need to file my ITR?
NRI & Taxation rules.
Dear sreekanth, thanks for reply and i appreciate your quick response. I would like to one more query.
In equity mutual fund at the time of redemption after one year if capital gain more than 2.5 lac will this amount is taxable ? Do i need to file the itr in both case whether is taxable or nil tax . Current residense ..nri..
Dear Rahul,
Any amount of LTCG on Equity funds is tax-exempt.
But advisable to file ITR and declare this LTCG under Exempt Income section .
Thanks for your valued suggestion. I have one more query .i am investing in mutual fund every month via lumpsum but not equal amount .is it effect my return ? In comparrision to sip. I have started 3 sip investing and 2 fund started with lumpsump but every month i am also investing same fund via lumpsum but unequal amount.pls advise am doing right approach for good return as i understand mix of sip and lumpsum make good return.
Dear Rahul,
There is no right & wrong approach (style of investment).
Personally, I invest via SIPs and also make additional / lump sum investments in same funds.
Read : SIP Vs lumpsum investment.
Hello Sreekanth,
Thanks for the insight of valuable information.
I have few queries and need your valuable suggestion.
Already Invested plan
—————————–
1. Last year I buyed HDFC Prudence Fund -Regular (D) through HDFC bank manager – 16lakh. It is giving me dividend every month 15k+. can I continue this plan ?
New Investment planning Lumsum – Lock Period Term : 8 years
———————————————————————————
1) Dividend-Balanced – HDFC Prudence Fund – Direct Plan (D) – 30 lakh
2) Growth-Balanced – ICICI Prudential Balanced Fund – Direct Plan (G) – 25 lakh
3) Growth-Balanced – HDFC Prudence Fund – Direct Plan (G) – 15 lakh
New Investment planning SIP – Monthly – Lock Period Term: 15 years
—————————————————————————————
1) Large Cap – ICICI Pru Top 100 Fund (G) – 5k
2) Small & Mid Cap – L&T Midcap Fund (G) – 5k
3) Small & Mid Cap – HDFC Mid-Cap Opportunities Fund (G) – 5k
4) Thematic – Infrastructure – L&T Infrastructure Fund (G) – 5k
5) Balanced – HDFC Balanced Fund – Direct (G) – 5k
Need your guidance
————————–
1) Can I invest on the above funds as an NRI or use my wife to buy this as they are resident ? What is the advantage ?
2) Are the above MF and SIP are advisable fund for the respective period? Is it good for long run ?
3) How can I buy this direct funds ? ( through MF Utility or any other best) – were no commission and easy to handle all funds in one view.
4) As per my understanding the funds I opted are Equity and long-term, so it will fall under Long Term Capital Gains and it will be taxable based on the residential status at the time of sale of fund.
What would be the tax liability if NRI and resident in Middle East ?
What would be the tax liability resident ( back to India) ?
5) Any other fund which you recommend for long term better then the above ?
Looking forward to your help
Dear raju,
1 – Do you need Dividend income? Are you dependent on this income for meeting your living expenses? Is this for consumption or are you re-investing anywhere else?
There is no lock-in period for balanced fund. (I believe you have just mentioned the investment time-frame as 8 years, am I right?)
2 – Any specific strategy / objective for investing multiple Balanced funds?
3 – No specific adv or dis adv for NRI vs RI. (But read : NRIs & FATCA compliance)
4 – Can consider MF Utility if no fees is the main criteria.
5 – Kindly note that Long term capital gains on Equity funds are tax-exempt for both NRIs as well as Resident Indians. For taxation rules, kindly go through above article.
Kindly read :
Best MF schemes 2017.
NRI & Taxes.
1. Dividend income : I am re-invest the dividend income on the mentioned 5 SIP Plan.
2. yes, your correct I mentioned keep time frame of my investment.
3. No specific strategy, but objective is to get good return at 8 years and at 15 years with less risk.
In directly Investing 60 lakh in balanced were the risk is low.
Let me know if you have any best investment plan for me.
Thanks
hello,
Being a housewife i invest very small amount like 5000/- or 6000/- in equity based mutual fund though my demat account and also redeem the amount after it gains some amount within 2-3 months.I don’t have any other source of income so i don’t file the IT return.Please tell me if any short term capital gains attracts in my case.If yes,then will it deducted by its own or i need to file return for that.
Dear Mitra,
You need to disclose the Short term capital gains while filing your ITR and calculate your tax liability (if any).
MFs do not deduct taxes on capital gains.
The investment strategy followed by you, can be a very risky one!
HI,
I have a query regarding Debt MF STCG tax on dividend reinvested for Indian resident.
Here is scenario using 5000 rupees invested in Ultra Short term fund as Monthly dividend reinvestment.
1. On 3-Feb-2017, invested INR 5000 . At NAV INR 1034.6303, got units 4.833
2. On 28-Feb-2017, received dividend INR 20.94. Reinvested at NAV 1032.5107, got units 0.02
3. On 6-Mar-2017, sold all units 4.853 at NAV 1033.5483 and received amount INR 5015.81 in my bank account.
Can you please help me in understanding my capital gains/loss in this and how its calculated.
THx
Anand
Dear Anand,
You have a Short term Capital Loss.
Capital gain(STCG) = Redemption amount- Purchase cost – Dividend reinvested.
Dear Sir,
Recently I withdrew all the remaining 80% of my investment amount fr0m the NPS scheme and exited it in the current financial year (2016-17). Please tell me how to calculate Capital Gain Tax on the total amount I have received. What will be my tax liability as per the existing rules of the NPS scheme.
I look forward to hearing from you at your earliest convenience.
Needless to add I’ll be very thankful to you for your advice.
Thanking you, in anticipation.
Faithfully, yours
Sanjay kumar srivastava
Dear sanjay,
May I know if you are a govt employee & your age? For how long have you been contributing to NPS?
Suggested reading : Review on NPS Scheme!
Dear Sir,
First of all let me thank you very much for your prompt reply.
I am an employee of a private organization (a PGT in a college), aged about 48. I had been contributing to NPS since September 2011 and I received the remaining amount of about 25000 by the end of 2016.
Thanking you, in anticipation.
Faithfully, yours
Sanjay kumar srivastava
Dear sanjay,
But a pvt sector employee can exit from NPS, after contributing to NPS for minimum 10 years. Am I right?
And that too 80% of the withdrawn amount has to be used to buy an Annuity product.20% can be withdrawn.
However, if accumulated pension is less than Rs 1 lakh, the NPS subscriber can withdraw full 1 Lakh without purchasing the Annuity product.
Dear Sir,
I have EPF facility in my institution in place of NPS, and my corpus was, indeed, less than -far less than- one lac; actually , it was a mere about Rs 25000/-. Hence the present situation; the 20% of which I withdrew some few months back.
Now , sir, the problem I am faced with is how to calculate Capita Gains on this amount. I am preparing to file my return for the current financial year.
Thanking you, in anticipation.
Faithfully, yours
Sanjay kumar srivastava
Dear sanjay,
I believe that the withdrawn amount is treated as your income and charged as per your income tax slab rate.
Kindly consult a CA.
Hi Sreekanth,
Very informative article! I am not clear how the capital gain tax is deducted?
I have redeemed 3000 from one of debt fund within 4 months but didn’t see any capital gain tax amount is there.
Thanks,
Navneet
Dear Navneet,
Kindly note that fund house won’t deduct Tax on gains (if any).
You have to show the short term capital gain in your income tax return and pay taxes accordingly.
Hi Sreekanth,
Thanks for the prompt reply.
How to I calculate capital gain tax after indexation to show in my ITR? Does MF house share Capital gain or tax with Income Tax department via Form 26AS?
Dear Navneet,
As mentioned in my previous comment, fund house does not levy CG tax, so it wont be reflected in Form 26AS.
You can request for a Capital gain statement from your AMC or distributor or Registrar and then you can disclose it in your ITR.
Kindly read: How to get Mutual Fund Consolidated Statement & Capital Gain statement online?
Hi Sreekanth,
Please bare with me as I have started investing in MF from this year only.
Can you please share the formula to calculate capital gain tax? If MF does not disclose any income to Income Tax department, Can someone hide the same while filing ITR?
Dear Navneet,
We are now seeing the consequences of hiding ‘income details’, as the IT dept is now very much efficient and they can easily track the details (if required). So, advisable not to do that.
Kindly go through this article : Capital Gains on Stocks & MFs (equity).
You may download mutual fund capital gains calculator…
Hi Sreekanth,
As you have shared the link to get the consolidated statement CAMS Mail back service for Consolidated Account Statement for all mutual fund Schemes.
I downloaded the statement but it contains only purchase, sip & redemption but no capital gain
Dear Navneet,
You have to request for Capital Gain statement (Consolidated Realized Gain Statement) and not CAS.
Hi Sreekanth,
As you commented I can not get the capital gain statement from CAS. Does that mean I have to request every MF house to send me the capital gain list?
It looks a length task as I have 7 – 8 funds of different houses in my portfolio. Is not there a single place to request the same for e.g MF Utility to transact across almost all fund houses
Dear Navneet,
CAS is just a transaction statement, whereas Realized gain statement is a Capital gain statement.
You can request capital gain statement for multiple funds serviced by CAMS / Karvy in one go.
Kindly read my article on ‘how to get CAS & capital gain statement online?‘ again, I have given details on how to get CG statement too.
Hi
I want to plan for long time for my child education. I know kisna yojana in Post office which makes double the money after 100months(8yrs.4mts). My question are
1. I am I doing right investment. or is there any better option available.
2. after 8yres what ever money I get. do tax get deducted in that.
3. now if I invest in that, can that be consider for tax deduction
———————————————————–
I even want to know about short time mutual fund investment.
1.ex I invest 50000 after 3 months what amount I get.
2.the amount I invested (50000) is there chance of losing that also.or for sure I will get my 50k back
3. which is best short mutul plan
please do help me.Your best at making things understand regarding tax
thank you
Dear Syed,
The interest earned from KVP is taxed as per the Income Tax slab applicable to the investor on redemption.
Kindly note that returns on Mutual fund investments are not guaranteed.
Read below article, you may use available calculator to project expected corpus for your Kid’s education. You may revert to me with more queires 🙂
Kid’s education goal planning..
Hi Sreekanth,
Very informative post. I have a mutual fund TEMP INDIA CORP BOND OPPORTUNITIES GROWTH. I have invested via SIP from 2012-2014. If i redeem the fund now, will there be any tax on it?
Thanks,
Pramoda
Dear Pramoda ..This is a non-equity fund (debt fund), so taxes on Long term capital gains (if any) will be applicable.
I’m holding funds in 2-3 liquid funds for a period of less than 1 year. If I pull out my funds now will it be taxable as per my IT slab?
Yes dear Raghuma ..
Hi Sree,
Appreciate if you help explain the tax liability on Birla Sunlife MIP II WEALTH 25 Plan
STCG and LTCG. Thank you.
Regards,
Samir
Dear Samir,
MIPs are considered as Debt funds / non-equity funds.
If you make a gain / profit on your investment in a Non-Equity Mutual Fund scheme (or in a Debt Fund) that you have held for over 3 years, it will be classified as Long Term Capital Gain. The STCG tax rate on Non-Equity funds (or) Debt funds is as per the investor’s income tax slab rate.
If you make a gain / profit on your Debt fund (or other than equity oriented schemes) that you have held for less than 36 months (3 years), it will be treated as Short Term Capital Gain. The LTCG tax rate on non-equity funds is 20% (with Indexation benefit)
Dear Sreekanth,
I am retiring in April’17. I have a few queries on mutual fund investments.
1) I would like to invest about Rs.500 K in lump sum in some very good equity funds with sound track record of capital appreciation and dividend payments (yearly) to supplement my post retirement earnings. Require suggestions on such funds with suggested fund allocation.
2) Presently I have a SIP in ELSS (G) of Reliance MF which will complete the SIP tenure of 3 years after about 6 months. Once, the SIPs are completed I would like to immediately switch the accumulated units to Dividend option of the same fund of Reliance MF to supplement my earnings. my questions are – a) Whether that is permissible? b) Whether I will have to pay any STCG tax on such switch?
3) I would like to make investments in debt funds through SIP route to take care of my various annual payment obligations, e.g., life and health insurance premium. The SIPs will be for longer horizon, say five years, but drawings will be made annually for required amount to pay insurance bills. I know there will be STCG implication of 20% but even then expected earning post tax will probably be higher than Bank Recurring Deposits post TDS and tax on interest income. Is my strategy correct? If so, kindly suggest a few very good debt funds with high returns in growth option.
Thanking you in advance.
Dear Alok Ji,
1 – Are you going to be heavily dependent on this Dividend income to meet your living expenses?
Kindly read :
Retirement planning & calculations
Best Equity funds 2017.
2 – Kindly note that the units allotted under each ELSS fund SIP are locked for 3 years. You cant redeem or switch them. Also, dividend and growth options are treated as two different schemes, so taxes on capital gains (if any) are applicable.
3 – Kindly note that even Debt funds are subject certain risks. In case if you can hold on to your investments for just over a 12 months , you can consider an Arbitrage fund. Other options can be Liquid funds. In case if you would like to take little bit more risk then you may consider Systematic withdrawal plan of Conservative MIP fund-growth option.
Read:
Best Arbitrage funds.
Best MIP funds.
Best Debt funds.
List of best investment options.
Hi Sreekanth,
Thanks for your prompt response.
Of course I’m not heavily dependent on dividend income. I just want to supplement my post retirement income through a tax efficient way.
So what I understood from your response is that it would be better to invest lump sum in arbitrage fund and conservative mip funds with growth option and go for swp commencing after one year from investment to avoid any tax. Is my understanding correct?
Thanks once again.
Alok Basu
Dear Alok,
Yes, for arbitrage fund – any redemption or switch or SWP withdrawals after 12 months of holding would be tax-free.
This is not the case with MIP Funds. After 3 years of holding, any withdrawals would be subject to Long term capital gain taxes, less than 3 years Short term CG taxes can be applicable.
Kindly read: MF taxation rules.
Hi Sreekant,
I read your posts and thanks for sharing such great information I am 39 years old and plan to invest a amount of 3 lakhs in mutual funds wither lumpsum or over a period of 6 months. I can stay invested for 5 years. Could you suggest some good mutual fund
Dear Imran..You may pick one Balance fund and one large cap fund.
Ex – HDFC Balanced fund / Birla Frontline equity fund.
Thanks for sharing such a great article.
I would like to start SIP 10K per month for 15-20 yrs in following MFs –
Large cap – SBI Bluechip Fund – 3k (30% of SIP)
Multi Cap – ICICI Prudential Balanced Fund – 2k (20% of SIP)
Mid Cap – HDFC Mid-Cap Opportunities / Mirae Asset Emerging Bluechip – 3k (30% of SIP) – Plz advise which to select
Small Cap – DSP BlackRock Micro Cap / Franklin India Smaller Co – 2k (20% of SIP) – Plz advise which to select
Would you like to give me any good MFs name OR shall I need to change the SIP amount in each MF?
Is it good time to start SIP or shall I wait for few months as market is high?
1 more question – ICICI Pru Value Discovery and HDFC Mid-Cap Opp has huge AUM of 12 cr and 14 cr respectively. Would not such high assets value restrict them invest more OR it will negative impact on NAV value? Plz clear this point??
I missed 1 last qstn – is it require to spend some money into Balance fund. If yes then suggest me a best fund name and SIP % out of my fixed monthly SIP of 10k.
Thanks in advance for your help.
Dear Mr Roy,
Your portfolio looks fine.
As you have a very long-term horizon, you may allocate higher % of SIP amounts to Mid/small cap funds for the next few years.
Any time is good time to start SIPs for longer period 🙂
You may add a Balanced fund may be after say 5 year from now, that’s purely your personal decision.
There has been no research confirmation on high AUM vs negative performance for Indian markets.
Sir,
ELSS in non-equity or equity fund ?
please clarify
thanks
Dear gaurav ..Its an Equity oriented fund.
Hello Sir,
Very Very Nice article. Sir, I have one confusion. It says, no tax on long term capital gains. Please give me answer as per below example.
If I invest 5000 per month in ICICI Pru value discovery funds G – Multi cap for 15 years.
5000 * 180 months = 9,00,000 >> invested amount
I am assuming, I will get return as per 12% so, my wealth gain will be 16,22,880.
Now, 16,22,880 + 9,00,000 = Expected Amount Rs. 2522880 (25.2 Lakhs)
Will I get 25.2 lakhs in hand after 15 years? Please be exact amount as per above calculation, will be any tax etc.
Thanks in advance for your reply.
Dear Rahul,
The units allotted under each SIP if held for 12 months +, yes the gains (if any) on them are tax-free.
The SIPs in the last year (15th year), should also be held for 12 months to get tax-free returns.
Many thanks ? for your valuable feedback. ok, I have done my research and would like to go with 4 funds.
1) SBI Blue chip fund growth – Large cap
2) ICICI Pru value discovery funds G – Multi cap
3) HDFC Mid cap opp fund growth – MiD cap
4) DSPBR Micro cap fund growth – SMALL cap
Tenure 10+ years. After 12th year, whenever, I feel, amount is super good is any of the funds. I will start taking exist. Debt and other things, I have and I dont need liquity in near future.
I am planning to invest 2000 per month each in all 4 funds (total 8000 k per month)
I only have one question>> Do you think, I am doing right by distributing equal amount in all 4 funds. My age is 30 and I myself judge as Moderately risky player (trying to play little safe) and expecting (11-14%) with my current plan?
Basavaraj, as you know, its not T- 20 match (very long term plan) so just double checking everything :). Whats your best suggestion on this?
oops one more question in my mind >> I have selected 3 funds from your list out of 4. Would you suggest to make any minor changes in that also (to make my portfolio more attractive)?
Thanks ?
Dear Rahul,
Your portfolio looks fine to me. You may go ahead with your plan.
It may be prudent and beneficial to try investing or allocating more to mid-cap or small-cap funds at-least for the next say 3 to 5 years and they you may allocate more to diversified/large/balanced funds.
Dear Sreekant,
I have redeemed units of an income fund after 5 years. The units were held under dividend payment plan. The amount of investment was Rs 50000 and the redemption value is 53500. Can I get the indexation benefit for units held under dividend payout plan also? ?Because, if I take indexation into account, the result is a loss and without indexation, there is a capital gain of Rs 3500. Pls clarify. Thanks
Dear Rajesh,
Yes, you can take indexation benefit.
Sir I want to invest in Baroda Pioneer Credit Opportunities Fund- Plan B Direct – Growth (Investment Mode-LUMPSUM) for more than 1 year, i wanted to know whether there will be any taxes deducted when i withdraw the amount ?
Dear Ashish,
It is a Debt oriented fund, so the tax rules mentioned under Non-equity funds are applicable.
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.
Dear KAUSHIKI,
a – The STCG (Short Term Capital Gains) tax rate on equity funds is 15%.
b – Kindly note that LPG refund is not taxable.
Hello Sreekanthgaru,
I have to invest in mutual fund around 50k. I am planning for short term. Please suggest where can i invest? I should withdraw asap. What could be the minimum period to withdraw mutual funds(Equity)?
One important point, this 50k i have to produce for TDS in my company.
Dear Rajasekhar ..Are you referring to Tax saving mutual fund scheme?
Hi Sreekanth garu,
Yes absolutely.
Dear Rajasekhar,
All most all tax saving oriented products have lock-in period, ELSS investments have the least lock in period which is 3 years.
But I recommend you to invest in ELSS fund only if you can remain invested for longer period (5+ years).
You may consider Franklin Taxshield fund.
Thanks for the information Srinkanth.
If I’m getting more than 10 lakes in dividend from equity mutual funds in a year, is the dividend taxable @10% as per budget 2016?
I meant 10 lakhs (damn this autocorrect)
Dear Pankaj,
I believe this rule is on ‘Dividends received from Companies’ (stock investments) only.
Kindly read this article, click here….
HI,
If anyone invests one lakh in any liquid fund and immediately starts STP of 1000 every week into an equity scheme of same mutual fund house. what are the tax related rules for him . ? Please advise.
Dear Mandar,
STPs are treated ad normal redemptions.
So any Short term gains on debt fund/liquid fund are taxed as per income tax slab rate & LTCG @ 20% rate.
I have following queries:
1. Is there any limit on investment in Equity Mutual funds in a Financial Year?
2. Would there be any problem if I invest let’s say 20L in equity mutual funds through my bank account online in a financial year?
3. If for point 2 above, the money is from my savings account, which are already declared in IT declaration, tax paid income, can I still get income tax department notice for high-value transaction? There is nothing concealed or hidden here and no cash transaction at all?
Dear AshB,
1 – No.
2 – Provided the source of income is property accounted for and income tax return is filed accordingly (there should not be mis-match with income – expenses – investments).
“A company has to report receipt of Rs 10 lakh or more from a person/an investor in a financial year for acquiring bonds, debentures, shares or mutual funds (other than the amount received on account of transfer from one scheme to another scheme of that Mutual Fund).”
Read : How income tax dept tracks High Value Financial transactions?
Thanks Sreekanth, this information really helps.
As per the above link, Mutual Fund in excess of 2Lakh in a financial year is something which IT dept may track for High Value Transaction, however, as per your above inputs, if the source of funds is justified, it should be fine with IT Dept. Is this right?
Thanks again!
Dear AshB,
Rs 2 Lakh is previous threshold limit, which has been revised to Rs 10 Lakh. I have provided both the details in the above URL link (article).
Yes, it is correct.
Dear Sreekanth
My mother aged 70 yrs inherited my Dad”s FDs when he died 5 yrs ago.
ALl the FDs (amounting to Rs 10 lacs) is in her name now. She has a hybrid MF (UTI DUAL ADVANTAGE FIXED TERM FUNDSERIES II-PLAN IV -GROWTH) OF Rs. 10 Lacs in her name but tis too came from the FD withdrawal of my DADs investment after his death.
My question is
1. Does my mother has to declare this MF investment in form 15H?
2. is the interest income from FD and MF taxable, as far as my mom being a beneficiary is concerned?
My dad expired in 2011 and the last return was filed in 2011.
Does my mother has to file return too. She only earns her pension and is within 2.5 lacs yearly.
regards
Nandini
Dear nandini,
1 – As it is a growth Scheme there wont be any income (dividend) from this, so it is not required.
2 – Yes, the interest income is taxable.
Not mandatory to file ITR, but advisable to file.
Kindly read: Do I need to file Income Tax Return?
Dear Sreekanth,
For resident Indian, is taxes of STCG a TDS or it shall be paid by individual and declare during ITR, which ITR shall be used for STCG and LTCG. I am a salaried individual.
Dear Manirul,
It has to be declared by the investor in his/her income tax return.
Read: Which ITR form to file?
Hi Sreekanth,
Redemption of debt fund within 3 years attracts STCG. No indexation benefit and calculation is FIFO basis. Is it not penalising people redeeming units between 1 to 3 years and too severe while redeeming near 2 years and 6 months for their urgent requirement. Is it not anomaly in revising STCG from 1 year to 3 years? These fund becomes unattractive to FD and distributors also suffers.
Sreekanth,
Can you please comment on my earlier query…
Hi Mr. Sreekanth, at present I’m a NRI. I’ve folios in some of our Indian MF companies & maintaining some SIP with them & payments also made by direct debit from my normal Savings account. At present the status is “Resident Indian”, Please let me know the procedure to change my status as “NRI” & procedures while redemption of those units.
Dear Prasath,
You need to inform your Demat service provider about the change of Residential Status.
As per section 6(5) of FEMA, NRI can continue to hold the securities which he/she had purchased as a resident Indian, even after he/she has become a non resident Indian, on a non-repatriable basis.
Kindly read: NRI MF investments & FATCA compliance requirements.
Hello,
I have demate account in india, and holding equity shares from more than 12 months in it. Now i become NRI, so what shall i do with my existing shares ? If i want to sell in future what will be the procedure i need to follow ? And, in future i am thinking to brought that all money to outside of india, so how can i do that ?
Request to guide me in detail.
Thanks
GP
Dear Govind,
You need to update your demat provider or banker that your Residential Status has been changed to NRI. You can sell the shares anytime you want.
As per section 6(5) of FEMA, NRI can continue to hold the securities which he/she had purchased as a resident Indian, even after he/she has become a non resident Indian, on a non-repatriable basis.
If you want to acquire new shares as an NRI then you may have to route them through PIS (Portfolio Investment Scheme).
nder this scheme, NRIs are permitted to acquire shares/debentures of Indian companies or units of domestic Mutual Funds through the stock exchange(s) in India.
Investment can be made both on repatriation or non-repatriation basis. For making investment on repatriation basis, it will be necessary to make payments by way of inward remittance or by debit to the NRE / FCNR account of the NRI / PIO. Investment on non-repatriation basis can also be made by way of inward remittance or by debit to the NRE / FCNR / NRO accounts.
The sale proceeds of the repatriable investments can be credited to the NRE / NRO accounts of the NRI / PIO at the option of the investor, whereas the sale proceeds of non-repatriable investment can be credited only to NRO accounts.
Excellent response Sreekanth,
As per your response under section 6(5) of FEMA, my all networth will be considered as non-repatriable basis. Even my Equity shares investment are long term (Which is under 0% tax) ? So, how can i transfer my all that proceeding to abroad.
Also one other thing, i am thinking to get citizenship here & than want to become PIO, still all the rules for the LTCG on Equity shares and immovable property apply the same way or will be changed ?
Need your kind help!
Thanks
Govind
Dear Govind,
I believe that taxes on LTCG on Equities will remain tax-exempt.
Regarding repatriation of funds, suggest you to kindly consult a CA or tax expert who takes care of NRI taxation.
Hello,
I have good amount of indian cos equity shares since last 20 years. I didn’t did any transaction, it was just investment. I left India in 2012 bcs I got pr of another country,but I didn’t know about nri nri or pis scheme in banks. So I kept my all running bank account as regular resident of India.
So, now my question is how can I sell my investment,bcs they consider me as NRI. Can you suggest me to save myself from unwanted tax implications.
Your article provide really helpful information for ltcg on equity and mutual fund, can I request to guide me what shall I do if I want to sell those lo g term equity in my next visit in India in jan_2017.
Thanks
Nick
Dear Nick,
Any gains made from selling equity oriented MFs or Direct Equity Shares after 12 months of holding them, such gains are tax-exempted.
Hey Sreekanth,
Thanks for your prompt response! Could you please elaborate me the following things:
Can i be able to sell those equity as normal way through stock market agent or not ?
What will be the process to transfer my shares from normal demat to NRI demat ?
Regards
Nick
Dear Nick..Are you referring to equity mutual funds or Shares (direct equity)?
You just need to update your Residential status to NRI with your banker/demat provider.
Equity shares only.
Hey Sreekanth,
Is there any tax implication when i am going to inform my bank i am NRI, which is too late actually. Please guide me about that!
Dear Nick ..Tax implications (if any) will arise only when redemption (sale) is made.
Dear Sreekanth,
I am having HDFC “Pension Super Plan” paying Rs. 25000/- per year. Paid for 7 year since 2010. If I stop paying further & surrender the policy, what is the income tax rule. Pl. guide
Dear Subhash,
It is a Pension plan. Surrendering of Pension plan has some serious tax implications.
If you surrender your pension plan before maturity, the entire surrender value will be added to your annual income and taxed as per your tax slab. Also, you will have to pay back the tax exemptions you would have availed on the premiums paid until now. Apart from this, two thirds of the surrender value is to be compulsorily used to purchase an annuity plan.
Dear Sreekanth,
Thank you for prompt reply. “HDFC SUPER PENSION PLAN” is Unit Linked Plan, lock in period 5 years. Total paid Rs. 1,75000/ (paid for 7 years @ Rs. 25000/-) current value is Rs. Rs. 2,19000/- I have not availed tax exemptions on the premiums paid. So whether entire Value i.e. Rs. 2,19000/- or excess amount after deduction Rs. 1,17500/- is taxable ?
Regards,
Subhash Mahajan
Dear SUBHASH ..If it is an ULIP then you can get the Fund value as the surrender amount.
Read: 8 ways you could lose your Income Tax Benefits
Thanks Sreekanth
excellant article , keep it up sreekanth ,
Thank you dear Dr Aslam..Keep visiting ReLakhs 🙂
Namaste Sreekanth,
I have invested in SBI short term debt growth option. 3 questions.
1. If I less prior to 3 years, is the STCG fully taxed or is there any benefit of indexation?
2. Is the STCG taxed at my applicable tax rate or there is a cap?
3. If I sell after 3 years, I understand I pay LTCG of 20% only on the difference from the indexed value. Where can I find the indexation for SBI short term debt?
Thanks.
Bharat
Dear Bharat,
1 – No indexation benefit is available.
2 – As per ones income tax slab rate for Debt oriented funds. 15% cap is on STCG of Equity funds.
3 – For latest Cost Inflation Index for FY 2016-17 details, click here..
Hi Sreekanth,
I am a US based NRI. I became NRI in 2013, I had invested some money in Mutual Funds before becoming NRI, can you please tell me if I am supposed sell all the holdings or can keep it ? Do I need to pay any yearly taxes on the notional profit as per the definition of the Passive Foreign Investment Company (PFIC) ?
thanks,
Amit
Hi Sreekanth,
I understand that, If the units are held for less than 12 months, they would be treated as short-term capital assets and gain arising from redemption/sale of such units is treated as short term capital gain.
But just one query, what if after redemption I immediately (within a day or two) buy /invest in different MF.
Will I have to show the Short term gain in ITR & pay tax accordingly ???
Regards
Yogesh
Dear Yogesh,
Still, the taxation rules are same.
Hello Sreekanth,
I am NRI living in Canada.
I understand that there is no lerm capital gain tax for investments on equity funds. I wonder what would be tax implications for the Portfolio Management Scheeme from UTI or from any other broker per se.
Apreciate your reply if you can elaborate more on this issue.
Thank you,
Raj Vyas
Canada
Dear Raj,
The implications would remain same and are dependent on the underlying products they invest/buy/sell.
Read: Different Assets Classes & Tax implications.
Kindly note that Gains from PMS can also be treated as ‘business income’ at an individual level. So, you may have to check with your CA whether to consider them as capital gains or business income.
Hi Sreekanth,
I would like to invest money for around 2 Years view in a debt fund.
Can you suggest about HDFC Gilt Fund – Long Term Plan
Thanks
MadhuSudhan
Dear MadhuSudhanarao ..You may consider it. Other types can be Short-term debt funds can also be looked at.
Read:
Types of debt funds.
Best Debt funds.
Hi Sreekanth,
Now interest rates are falling so GILT funds are doing good, if interest rates start rising, definitely these GILT funds will not perform I guess, do you also see this negative impact or any other impacts can cause this fund to fall. How these type of GILT fund can be performed in recessionay times?
Thanks
MadhuSudhan
Dear MadhuSudhanarao,
In a interest rates raising scenario, gilt funds may not perform well.
Inflation levels, Bond yields prevailing in other major economies, credit rating of an economy, current account deficit etc., can also effect the performance of Gilt funds.
Dynamic bonds can be a better choice.
Sreekanth,
Thanks for sharing this useful information.
The tables and pictures add a lot of clarity on this subject.
Much appreciated.
Best regards,
Damodhar Mata
Irrespective of capital gain rules, if I sell mutual fund units (e.g. UTI Dynamic Bond fund) and the next day “reinvest” the entire amount to another fund (e.g. BSL Dynamic Bond fund) then will there be any tax liability ?
Dear Manoj ..Yes, taxes based on if it is STCG/LTCG (debt fund) will be applicable.
Thanks Sreekanth for the prompt response, appreciate it !
I’ve related query on “fund switch” option which is provided by AMCs within their managed funds. Such transactions should also be entitled for capital gain tax. Correct? If yes, will investor has to account such transactions to calculate tax liability. If no, what’s the reason?
Dear Manoj,
A switch is also treated as a redemption combined with a fresh purchase.
So, capital gains (if any) can be subject to taxes. The same taxation rules are applicable.
Got it, thanks Sreekanth !
Hi Sreekanth,
I had an investment in SBI Debt Fund Series – 366 DAYS 42 – Regular Plan – Growth since 15/10/2013. Yesterday ie 13/10/2016 I mistakenly redeemed the whole lot and received the redeemed value in my bank account to day. Can you advise me as to my tax liability in this case. Can you suggest a similar investment for a period of 3 years.
Thanks.
Satish K
Dear Satish,
It is a Fixed Maturity plan (debt oriented).
If you can afford to take more risk, you can consider an MIP fund (growth option).
Read: Best MIP plans.
Hi Srikanth,
My age is 27. My goal is to buy a Home. I want to invest in mutual funds . Let me know the best mutual funds and no fo years to invest to achieve my goal.
Dear Vedavyas,
Number of years – When do you want to buy the property?
i came recenlly from US. i have some money in my FD (40 Lakshs) . i want to invest this money in MF’s can you tell me what are good fund.
Dear venkata ..May I know your investment objective(s) and time-frame?
Kindly go through below articles;
How to select the right mutual fund scheme?
Best Equity funds.
List of best investment options!
Dear Sreekanth,
Here is my doubts
under SIP Franklin India Taxshield Fund-Direct i am planing to invest 10k monthly through my NRE account for the five years with growth of 13%. All money what i am going to invest is tax free or no.
Thanks,
Shafeek
Dear Shafeek,
Kindly note that the returns are not guaranteed on Equity oriented funds.
The gains on ELSS funds on redemption are tax-free. The investments can be also be claimed as tax deduction under section 80c.
Shafeek,
If you are an NRI, why are you going for Tax saving funds? Do you have income in India which makes you taxable? If No, then you can invest in Direct Equities to have an edge instead of Tax saving funds. If yes, then continue investing in tax saving funds.
I am NRI.
I understand that securities sold with profit withing a year will subject to Short Term Capital Gain Tax.
What would be the income tax implications for investing in UTI or say any other company’s Portfolio Management Scheeme. Both Descriptionary and Non Descriptionary. Since there will be actual such transactions happening in the scheeme under my account.
Thank you for your help.
Raj
Canada
Dear Raj..The taxation rules are same depending on the type of Product they buy/sell.
Hi Mr Reddy,
I have a question on SIPs returns and how it qualifies for STCG or LTCG. Lets consider the below example-
– SIP Investment of Rs 10,000 every month for 12 months.
– At the end of 12 months, Let us assume the fund value is Rs 130,000.
– So the gain is Rs 10,000 with wtd average days of 180 days (assume).
Is the calculation for ascertaining the returns based on wtd avg days of the total investment or Is it exactly basis every transaction to complete 12 months??
Thanks
Alok
Dear Alok,
It is on the basis of ‘first-in-first-out’ model.
Hello Mr. Reddy,
I am NRI and if I redeem money in mutual fund after one year then will it be considered as my income for the tax filing purpose? I know there will be no tak on redumption as LTGS but no idea whether to consider it as income or not.
please help
Dear vijay ..You can declare the gains (LTCG) as Exempt income under respective schedule of ITR. (It is not added to your taxable income).
To further comment, the reason for declaring it so that it is “White Money” to be used anywhere. Non-declaration may amount this interest as Black Money.
Correct me if I am wrong Sreekanth
Dear Manja,
True. If not declared, this may lead unwarranted notices from the IT dept, which need to be proved or justified by the assessee.
If the amount is huge, it is prudent to declare it in ITR, to be on a safer side.
Dear ,
Let me know if i make a equity Lumsum investment for more than 2 year, on maturity return is tax free whether my principle is taxable or not in current FY.
Dear Nileshsuryawanshi..Your understand is correct. Kindly note that the taxes (if any) are applicable only on gains when you redeem the MF units and not on your investment.
Hi Mr. Reddy,
Can one set off Short term capital gains in Liquid fund against loss in equity (Not equity oriented fund). Example: I have invested 10 lakh in a liquid fund and sold it after holding it for 6 months and in the same year i bot particular shares and sold it at a loss within 12 months. can these 2 things be set off against each other?
Dear Tushar..Yes, the loses on Equities can be set off against the gains on liquid fund.
Hi.
Can you tell me about investment in Arbitrage Funds?
Can I claim the investment as a deduction u/s. 80C?
Holding period of such funds to classify them into ST or LT?
Will the returns be taxable? if yes, At what rates?
Highly appreciate your support in this regard.
Dear Tarun,
Kindly read this article and you may revert to me if you have any more queries : All about Arbitrage funds!
I want to know, whether taxability on dividend more than 10Lacs, will apply to dividend received from Mutual fund also?
If so then what will be implication on Dividdend from Equity fund and Dividend from Debt fund?
Dear Akshay..Its not applicable for MFs. Dividends received from Equity MFs are tax-free (directly/indirectly). Dividends received from Debt funds are tax-free int he hands of unit-holders ie investors (direct impact) but fund houses have to pay a DDT of around 28% on dividend income (indirect impact).
Dear Sreekanth,
I have started a SIP in ICICI Equity Fund from 1st Sept, 2016 for an year. If I withdraw amount on 2nd Sept, 2017, I will get tax free return (as nil tax on LTCG) or my each monthly SIP amount need to stay invested for 1 year?
Dear Arun ..Yes, the units allotted under each SIP need to be held for minimum 12 months to get tax-free returns (if any).
Dear Sreekanth,
It means neither tax will be deducted at source nor I need to pay tax by adding gains in my income ?
Or
no tax at source but gains will be added to income.?
Dear Arun,
No TDS. But gains (short-term gains, if any) will be taxed at flat 15%.
Dear Sreekanth,
I have started STP from Liquid fund to Equity fund (ICICI) of 10 lakhs with transfer of 10k each month. Redemption/switch from liquid fund have no exit loads but will this “Redeemed amount” of 10k be taxed in any form?
Dear Arun,
As it is a liquid fund the units which are held for less than 36 months and transferred to equity fund will be considered for STCG (if any).
Beyond that they would be treated for LTCG (if any) (and if your STP continues for more than 36 months).
Dear Sreekanth,
But this 10k is my principal amount..it isn’t any kind of STCG or LTCG. How can and will this amount be taxed? Gains are resting in Liquid fund only, only some amount out of principal is extracted to Equity fund.
Dear Arun,
The taxation is applicable based on ‘first in and first out’ method.
Example : If you acquire 10 units in first SIP at the rate of Rs 20, 10 more units in 2nd SIP at the rate of 25 and if you redeem after 6 months the first 10 units will be redeemed and the gains are calculated based on the redemption day NAV.
So, if the holding period is less than 36 months – STCG, Else gains are considered as LTCG.
Dear Sreekanth,
So tax on STCG/LTCG for this transferred money of 10k will be reflected in Form 26AS of “same financial year” or after withdrawal of entire amount from liquid and equity fund?
Dear Arun ..It wont be reflected in Form 26AS, you need to calculate the STCG and declared it in Income tax return and pay taxes (if any).
Hi Srikanth, tgat was a astonish explanation on taxation and I feel my investment is tax free. To make sure of myself, here below given my investment details, pls respond as taxable or tax free.
JM Core 11 fund direct plan, equity fund, NRI, 14 months investment, Rs. 5k per month.
Pls help, taxable or tax free. Principle and returns.
Dear Ravi Teja,
KM Core 11 is an Equity oriented multi-cap fund.
The units if held for more than 12 months, any gains on redemption is considered as tax-free.
Kindly note that units allotted under each SIP (pm) need to be held for 12 months for LTCG consideration.
Hello Sir,
Any idea about TAX for liquid funds .Am planning use the fund for an emergency fund ,school fees(3 to 6 months) and insurance payment (12 months) . Am in 30% tax bracket .
suppose am doing sip 13000 monthly 3000(emergency)+5000(school)+5000(insurance ) after every 3 months i will do redeem of 15000 and after 12 months 45000 .Please let me know what will be the tax .Need some rough idea
Thanks
Sivabalan M
Dear sivabalan,
The taxes are levied based on ‘First in and first out’ method.
The gains on units which are held for less than 36 months (debt funds) are taxed as per your income tax slab rate (10/20/30%).
Dear Sir,
I want to know whether there is any limit for investing in a Mutual funds in a financial year? Suppose i invest Rs. 5 Lakh in a particular scheme, will i face any tax audit/query or any complications?
Dear Kartik,
As such there is no ceiling limit.
Let’s say if your investments/expenditure in a Financial year have are more than your source of income which is disclosed in ITR then obviously may lead to discrepancies.
Read:
How IT dept tracks high value financial transactions?
Thanks for your inputs and the link. Highly appreciate!
My question relate to payment of Interest on PPF upon partial withdrawl. Ihad completed more than 15 years in PPF, after that I decided to withdraw Rs. 15 Lakhs and same to be deposited with SCSS on 30/3/2016.
I found that PPF has calculated interst on withdrewal amount of Rs. 15 L till 29/2/2016 and did not pay for 29/ 30days of March 2016. But SCSS has paid interst on 15 L even for Two days viz 30th & 31st March 2016.
I want to check with you that PPF holder is supposed to get interest till date of withdrawal or No.
Since SCSS is also Govt Small saving scheme, does rule differ here?
Shall appreciate your reply.
Thanks,
Dear Bhagwan,
PPF interest is calculated monthly on the lowest balance between the end of the 5th day and last day of the month.
If you have withdrawn before the last day of the month (March) then I think you would have got interest amount till March 5th.
Dear srikanth, I am an NRI and invested in liquid funds for short term (3 months). TDS of 30% deducted at source, can i claim the amount by filing Income tax returns.what is the difference between liquid fund and ultrashort term fund, is there any chance of loosing the principle amount in these funds.Thank you
Dear mahesh,
Yes, if you do not have any other taxable income.
Debt funds too are subject to certain risks, but chances of loosing the invested amount are very rate but can’t be totally ruled out.
Read: Types of Debt funds.
Hi Sreekanth! Thank you very much for the informative article.
I just had one question regarding taxation on debt funds for NRIs.
What is the difference between a listed fund and an unlisted fund?
Dear Kshitij..Closed Ended funds are generally the LISTED ONES. (Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed.)
dear sir, my concept is not clear regarding tax liability of a debt fund. is it deducted at the time of redemption? if not, then how LTCG is calculated on redemption of a debt fund with 20% with indexation + 15% Surcharge+ 3% Cess = 23.690%.
pl. clarify the matter clearly because due to tax liability i am not interested to invest in a debt fund.
my annual income is < rs. 90,000.
Dear KAUSHIKI ..Yes, taxes (if any) are applicable only on redemption of MF units.
dear sir, as far as i am concerned no TDS will be deducted at the time of redemption of a DEBT FUND. but i may be wrong. pl. clear my doubts.
moreover i have a query regarding TDS of NCD BOND. what would be the maximum limit?
Dear KAUSHIKI ..TDS is applicable in NRI cases.
Read : All about NCDs!
Hi,
Kudos for the informative article!
My query is regarding NRI short term cap gain on shares/stock/ipo.
1. Will my tax @15% get deducted at source?
2. If so, will I (NRI) have to file return?
Thanks
Dear FR..If the TDS amount is below exemption limit NRI can file ITR and get the refund (assuming no other taxable income). Else, can just file the return and applicable tax liability needs to be paid.
HI Sreekanth,
My Mom is 65 yrs old. She has kept her money till now in FD’s. Since the interest from FD’s are taxable, I was looking for a suitable non risk Option to invest her money so that at-least TDS can be avoided.
I am presently looking to invest her money in Liquid Funds. She is a Widowed house wife, she falls under 0% tax bracket. In this case, what would be her tax implication on STCG.
Dear Badri,
Is she totally dependent on the income generated by this Corpus?
If her tax slab rate is NIL, even if a bank deducts TDS, she can claim it as REFUND by filing Income Tax Return (ITR).
Kindly read:
List of investment options.
Hi Sreekanth,
Would there be any STCG in this scenario –
1) Individual invests Rs. 10000 in equity MFs at the begining of financial year
2) After lets say 3-4 months, the NAV is 11,500 and individual redeems Rs. 10000 out of it.
3) After another 4 months, individual reinvests Rs. 10000 in the same scheme
Would the 15% be charged on pro-rata basis? This is, would the investor be paying tax of 87% (10000/11500) of gains in this case, which is Rs. 1305?
Or would it be considered as a square-off because whatever gains were realized have been reinvested in the same financial year (basically, no withdrawals)?
Second question – Is there any rebate in tax when it comes to unrealized losses in equity scheme? Or losses on hedging instruments (for ex. – Futures and Options) against the MF exposure?
Thanks
Dear Puneet,
It is on a pro-rata basis..
Squaring-off can not be done.
There is no tax rebate on un-realized loses of a equity scheme.
If you incurred speculative loses during intraday trade, they can only be set off through speculative income and can be carried forward up to four years.
Intraday trading has been defined as ‘Speculative business’ whereas F&O trading is not. Income from trading F&O (both intraday and overnight) on all the exchanges is considered as non-speculative business income as it has been specifically defined this way.
Speculative (Intraday equity) loss can’t be offset with non-speculative (F&O) gains, but speculative gains can be offset with non-speculative losses.
Dear Shrikanth,
i need some clarification in terms of Liquid funds. As the name suggest I have option of withdrawing part of money invested because of liquidity . But suppose I invest about 10 lakhs in Liquid funds instead of FD as i may get better returns but need to withdraw about 2 lakh from that at 2 years, will that be considered as Short term CG. and what will be the tax on that withdrawl.
Dear Hrutvij,
You are referring to ‘Liquidity’, all mutual funds have high liquidity ie you have the option to withdraw anytime and you get the money in 2-3 days.
Yes, liquid funds are treated as Debt funds and any gains within 3 years is considered as STCG and taxed as per your income tax slab rate.
Read:
Types of Debt funds.
Best Debt funds.
Dear Srikanth, It’s great to see your highly informative and knowledgeable information. I am 50 year old and want to generate 15-18 percent of returns on my investment from now on. I am prepared to take moderate risk.
Can you kindly suggest me what should be allocation of investment into mutual funds, debt funds and hybrid funds in terms of percentage? Thanks for your help sir!!
Dear Giri ..May I know your financial goals & time-horizon??
What is the best monthly scheme for senior citizens, and which has least implications and keeps the money flexible, id debt mutual funds u rtiled down to 3 years i suppose and even before or after if u sell, then u have to pay cpaital gains tax on selling price/profit, but what if u dont sell and only withdraw a part of principal amount invested, is that taxable too, dividends as it is are tax free as far as I know. Any other scheme, taking interest from MIS of post office and transferring them to recurring deposit, is said to be good, but on what basis
Dear Sachin,
We have to live with TAXES.
May I know the investment objective(s) and time-frame??
hi Sreekanth,
this was a very useful article. Wanted to check one thing with you. I was told by an investment advisor that if I switch from one debt fund (after holding it for 1 year) to other debt fund (and hold the same for another 2 years), i would be still entitled to get indexation benefits. Is that correct?
regards
Vivek
Dear Vivek ..If redeemed before 3 years, you go to pay taxes on STCG (if any). Switch here is considered as redemption.
The long-term capital gains from debt funds are taxed at 20% after indexation.
Hi,
1). Are all FMPs have only Growth as option?
2). Debt MFs (Growth) – if held for more than 3 yrs will have less taxation due to indexation benefits.
If I start changing Option from G to Qtrly Dvd – after 3 years of holding as G – will all my DVDs be tax free?
3). If I had invested Rs. 1 Lac in a Bond MF (Growth option) from June ’13 till July 16 (3 yrs complete) and my Value of investment is Rs. 129000/=, what is my Nett RoI? How is it calculated?
4). If I then change this option from Aug ’16 as Qtrly Dvd – if Dvd is 9%; then will I be getting Rs. 9000/= as Dvd or Rs. 11610/= as Dvd in 2017?
Dear Abhishek,
1 – Not necessary, can have both Growth as well as Dividend options.
2 – Switching from one option to another, even if it is within the same scheme, is deemed like withdrawing money from one scheme and putting into another. This withdrawal attracts long-term capital gains or short-term capital gains, depending on the tenor that you had stayed invested in the first option.
3 – Kindly read:
Formulas to calculate Rate of return.
XIRR – Excel function.
Shrikant,
I have invested lump sum in Birla sun life MIP wealth 25 scheme last year. There will be taxation on withdrawal after 3 years.
if i continue to do STP for next 10 years till whole amount in MIP becomes Zero.
There will not be any tax complications. correct?
Thank you
Dear rohan ..Kindly note that STP transactions are also treated as normal redemptions and taxes are applicable on capital gains (if any).
If you park money in the Growth option of a debt fund and do an STP before the completion of three years, it will attract short term capital gains tax, as this will be considered as redemption from debt fund. These gains will be added to your income and taxed according to your tax slab. .
I have invested Rs. 10,000,00 in MIP scheme and I am doing STP of Rs. 11000 every month.
This amount of 11000 is short term gain?
it’s just going from one debt scheme to another equity scheme.
please clarify as I am new to the Mutual fund investments.
Thanks
Dear rohan ..Applicable STCG taxes have to be paid.
Hats off for the updated informative article.
Though I know a little, but finding such handy info covering investment to tax aspects, is wonderful.
Keep it up and keep posting such helpful info.
Thank dear P Jain ..Keep visiting!
Dear sir…i have a doubt sir,
(1) I invested in dsb block rock liquid fund…rs.5000 for every month
(2) then i make STP to micro cap fund and dsp tax saver weekly method…
(3) gain from the liquid fund go as invest to micro cap and tax saver equity fund…
(4) i did not made redeem from dsp liquid fund… all amt go liquid to equity by STP….
(5) should i have to paid income tax by this method…? i am in 10% tax slab… please reply sir….
Dear SURESH,
Kindly note that STPs are considered as normal redemptions only, so taxes are applicable on capital gains (if any). Thus, if you do a STP from a liquid/debt fund (growth option) before completing three years, you will have to pay short term capital gains tax according to your tax slab.
if i made 10 sips for 10000 each from january to october 2016 and redeemed 110000 in february 2017….will i chargeable as STCG or LTCG????i am asking as sips from march onwards are held for less than 1 year….
thanks
Dear abhisek ..What type of funds? (Equity or Debt)??
EQUITY……DSP BLACK ROCK…Top 100 Equity Fund……
Dear abhisek,
The units allotted in Jan 2016 sip would have completed 1 year if redeemed in Feb 2017, so LTCG. Rest STCG, applicable.
For CG calculation, the basis is ‘first in , first out’ method.
thanks a lot………..u have been a great help……
Dear Mr. Reddy,
I want to ask 1 question but may be stupid one. Hypothetical example.
Suppose I invested Rs 100 in equity fund and after 1 year, my return is 15% (rs 115). I redeem the MFs (avoided the STCG as it i kept on invested for more than 1 year), avoided exit load as well (as mostly after 1 year there is no exit load) and ensured the return (15%). After getting the money in 2-3 days, I again invested Rs 115 and then my return is 10% after the next year. In this way my net protection is 5% return ? Am I thinking correctly. Please guide.
Dear Nidhi,
May I know what do you mean by ‘net protection’ ?
You are re-investing the entire sale proceeds right ??
Yes, re invesing but now return will be on Rs 115.
eg Rs 100 – 1 year- 15%- 115
2nd year Rs 115-1 year-10%- 126.5
If I kept it for 2 years, I would have got 110 only so I gained Rs 16.5 as in growth option compounding really does not happen only NAV improves and no. of units remain same.
I know I am sounding very vague but can you make me understand this point.
Dear Nidhi,
If you remain invested then you will get the same growth right? (appreciation).
I am investing in two SIPs @ 1500/- per SIP. So, monthly it comes Rs.3000/- and yearly Rs. 36000/-. Now, please tell me whether this 36000/-, will come under TAX exemption, for this year.
Dear Pabitra ..If the funds are ELSS funds then you can claim tax benefits under section 80c.
Read: ELSS tax saving funds.
Dear Sir,
I have a query regarding STCG of Non-Equity Mutual funds. I invested in DSPBR World Gold Fund, if I redeem my units within six months, how much tax do I have to pay at end of the year ? Is that according to my Income Tax bracket or anything else ? If my income is under 2.5 lakhs per annum, then what will be my tax for MF redemption ?
Thank in advance.
Regards,
Babai
Dear Babai,
The STCG tax rate on Non-Equity funds (or) Debt funds (Gold Funds) is as per the investor’s income tax slab rate.
“If other income excluding this short- term capital gains is less than basic exemption limit, you will be entitled to take the benefit of such shortfall in the basic exemption limit while calculating your tax liability.
let me explain this through example.
Suppose your taxable income is Rs.300000 and STCG is Rs.80000 then the amount of deduction is = exemption limit- (taxable income-STCG)
=250000-(300000-80000)
= Rs.30000
So the amount of capital gain tax to be paid on Rs.50000 (80000-30000)
In case your taxable income including STCG is below exemption limit then you are not liable to any tax.”
Thanks a lot for your valuable reply, thanks 🙂
Hi Srikant,
Very informative information. I have some specific query.
1) I know dividend in India are tax free in the hands of investor as the tax on dividends tax are paid by Indian Company but I am getting dividends from US company. What should be the treatment for the same from tax point of view.
2) Secondly that company is deducting withholding tax from dividends how can I claim that from Income tax
3) is there any rebate if the net receipts are getting re-invested in shares purchased of the same company.
Thanks in advance,
Gagan
Dear Gagan,
Are you an NRI or Resident Indian?
I believe that dividend income received from foreign companies is taxable in India. Dividend incomes are considered under the income tax head “income from other sources.
If taxes are paid on such dividend in the country where company is based, the investor may claim relief under double taxation avoidance agreement (DTAA), provided India has such an agreement with that country.
If there is no such agreement, an investor can even claim relief under section 91 of the income-tax Act.
For example, you have invested in the shares of a foreign company abroad and earn Rs.60,000 as dividend. You have also paid Rs.6,000 as tax on this in that country. Then, while filing your tax return in India, if your tax liability on such income is Rs.18,000 (if you are in the highest tax bracket of 30%), you are allowed to claim relief of Rs.6,000 and pay only Rs.12,000 as tax here.
Hi Sreekanth,
I have invested in an ELSS scheme – SBI Magnum Taxgain – Regular – Dividend. It has been well over 5 years since I had invested. I would like to know the following:
1) The dividend paid annually (the net amount that I receive in my bank account) – is it completely tax free?
2) If I want to redeem the total units, how is the tax applicable on this? Since the investment was made more than 3 years ago, does it mean that the entire invested amount is taxfree?
3) For the same fund mentioned above, suppose I invested Rs. 100 in the fund 5 years ago and the fund value as on today is say Rs. 110 – how is the gain of Rs. 10 treated ? Is it taxable?
Dear SS,
1 – Yes.
2 – LTCG on ELSS funds are tax free. (assuming this is a lump sum investment)
3 – Not taxable.
Hi Srikanth
I want to invest in Liquid or Debt funds. I fall in 30% tax slab. I can invest for long duration but to be on safe side for some unforeseen needs, I would like a flexibility and therefore want to plan for STCG only.
I am confused between dividend vs dividend reinvestment payout option. Can you please list some differences.
My fundamental query is which one is more suitable for minimum tax liability, keeping in mind withdrawal flexibility.
Reply appreciated,
Atul
Dear Atul,
Except Closed ended funds, all other mutual funds have very high liquidity, can be easily withdrawn.
If you would like to have minimum tax liability & safety of capital is priority, you can consider Arbitrage funds.
Read: Best Arbitrage funds?
Do you need regular income (periodical) from this investment?
You can invest in any closed ended scheme where tax is charged on indexation rate.Also 85% of your investment will be safe.
I have invested Rs. 26 lakh in November 2010 in L44 SBI – Magnum MIP-Growth Option . Currently, the value is Rs. 43.8 lakh. After 3 years I will retire from service, when I need to withdraw systematically month-wise. Do I need to pay any tax at that time while withdrawing a monthly amount?
Dear Paritosh,
Yes, you need to pay taxes on LTCG on the withdrawals.
Why taxes on LTCG when after a year, it is tax free ?. Does equity mutual fund come under EET although the gain is LTCG ?
Dear Palak ..After one year, the gains are tax exempted w.r.t Equity funds.
Also read : Tax treatment of various Financial Investments.
But you replied to Paritosh above as per below :
“Dear Paritosh,
Yes, you need to pay taxes on LTCG on the withdrawals.”
If LTCG is tax free, the statement is contradictory bro.
Kindly note that MIP is not an Equity oriented fund. Go through the article again.
Hi,
I had invested in one of the liquid fund with daily dividend option in Jan 2015. I redeemed all the units on Sep 2015 and made a profit of Rs.40000. I fall into 30% tax bracket. How should I pay tax for this? I heard that DDT is to be paid by the AMC. Should I still pay e.g. ~28% tax on the profit I made?
Regards,
Kiran
Dear Kiran,
Dividend income is tax-free in the hands of the unit holder (investor).
Yes, you need to pay applicable taxes on the capital gains you made (STCG).
Dear Srikanth,
Learned something new from your to the point and clear replies.
Thank you dear Sudham ..Keep visiting!
Dear Srikanth
Your writeup is crisp and clear. It is very useful and has educated me.
I need your expert opinion on a specific problem. I state the case below.
My wife had invested 4, 42,280 in a fund named Sundaram FTP-FD-Reg(G) -Debt on 6, March 2014 and it was redeemed on 7, April, 2015. On redemption she got a gain of 45,829. As per your write up this will be called as short term gain non equity and she has to pay tax on it as per the income slab. Am I right? if the entire amount is reinvested in another fund within a month, has tax to be paid?
I will be obliged if you could enlighten me on this.
With warm regards
SR Rajagopalan
Dear Rajagopalan,
Even if the amount is re-invested, such STCG will be taxed.
Dear Srikanth
Thank you very much.
With warm regards
SR Rajagoplalan
Hello,
I used to own 1) Canara Robeco Income – Regular Growth 2) JM Short Term Fund – Growth and 3)JM Money Manager Fund – Super Plan – Growth.
I have redeemed all three before 3 years, Request you to clarify whether the capital gains (<3 years) from these are classified as Long term or short term…I am hearing different answers, your answer would help in raising my awareness.
Thanks,
S
Dear S..All these are Debt funds. So the gains (if any) will be classified as STCG, if units are redeemed before 3 years.
Hi Sreekanth,
My wife had below 2.5 lakhs income in FY15-16 and so was tax exempt. But she had a short term gain on a debt mutual fund, so it should tax free for her. I am right in this assessment?
Yes dear Atul …In case your taxable income including STCG is below exemption limit then you are not liable to any tax.
Thanks a lot.
Sreekanth,
If i invest Rs 100000 in monthly dividend yield equity fund and receive say Rs 10000 as dividend in 1 year. After 1 year if fund value is 99000 and i withdraw all the fund then what will be the tax implication ?
Dear Pankaj,
Very good question!
Since the NAV of dividend option mutual fund goes down after dividend distribution, an investor may incur LOSS if units are sold.
The investor can take the advantage of setting off in mutual funds.
This potential tax avoidance approach is called as dividend stripping. Hence, to plug this loophole, setting off is not allowed if an investor buys units within 3 months prior to the record date (dividend) and sells those units within 9 months after the record date.
If it is beyond this time-period, setting of losses can be availed.
* Short term losses can be set off against any short term or long term capital gains.
* Long term capital loss can only be set off against capital gains of long term.
* If certain year’s capital loss is not used for setting off against any capital gains then it can also be eligible for setting off as it carried forward for the next eight years.
Dear Srikanth,
Very informative article.
I am an NRI (have been living outside India for more than 9 months, no salaried income in India or less than 2.5 Lacs). If I make a gain of 10K INR on Debt Mutual fund under STCG (pull out within one year), I assume it will be TDS @ 30% flat. Can I then claim for refund? In case of refund would it be 3K INR which will be refunded?
Thanks,
John
Dear John ..If you do not have taxable income (it is below exemption limit) then you can claim the TDS as refund.
Thank you !
Hi Sreekanth,
I am a tax payer.
1. My dad had invested in Tata Young Citizen Fund in 1999 when I was minor. Today if I sell this MF then is the income / profit earned is taxable ? I suppose this is balanced fund. If yes, then under which IT head do I need to show income (Exempt Income or Long Term Capital Gain clause) And how much do I need to pay tax (@ flat rate or as per my tax slab)
2. I also have equity based few mutual funds. This were invested more then 10 years back. If I sell today, is the profit earned taxable if profit is crossing limit of IT i.e 2.5 lakh. Assuming I am a tax payer and also suggest for my family member who’s income is within limit (i.e. Nil return file)
Hi Sreekanth
I will have dividend income of over 10 lakhs during AY 2017-18 from various Debt and Balanced Equity Funds . I have mostly invested in the monthly/quarterly dividend payout option of these funds. Do I have to pay 10% tax on the divided received by me during the year?
Dear Monojit,
Yes, dividend income in excess of Rs 10 lakh to be taxable @10% (plus applicable surcharge and education cess) and not the entire dividend income.
Hello Sreekanth,
Need clarification if I switch from a Dividend (reinvest) scheme of an equity MF to the Growth scheme of the same fund (after more than 3 yrs). The fund amount in this case is not redeemed but only switched out. So the long term capital gain (which is tax exempt) is only notional and not actually redeemed to my bank account.
My query – do I need to report this notional long term capital gain (on account of switch out) as an exempt income (schedule EI) in the ITR? Please clarify.
Dear Ramesh,
Ideally, better to disclose/report the Exempt Income in ITR, especially if it is huge amount.
Thanks, Sreekanth. So you suggest to report this notional gain even if this does not reflect in the bank account.
A related query on this – for showing the capital gain in this case should I consider indexation or not. Because without indexation, the capital gain is positive but with indexation included the capital gain is negative. What is the correct approach for reporting in exempt income ?
Dear Ramesh ..You may show the without indexation figure.
Thanks for clarifications.
I have purchase liquid funds of reliance liquid fund cash plan…and invested many times and also redeemed many times but keeping the gain unredeemed…I only redeemed my investment amount.gain is still in the fund.what will be my tax liability?
Dear Bhargav ..The taxation is levied on first in and first out basis. So, you have to pay taxes (if any) on the gains made. You may request for a capital gain statement from your broker (if you are investing through a broker or online platform).
Hi
I did Below transactions in HDFC Cash Management Fund – Treasury Advantage Plan – Direct Plan – Retail Plan – Growth Option. what will be the tax treatment and how do I calculate tax on periodic redumptions?
1-Mar-16 Buy 7000
3-Mar-16 Buy 5250
20-Apr-16 Buy 500
25-Apr-16 Buy 350
2-May-16 Sell 1500
9-May-16 Sell 200
6-Jun-16 Buy 1400
15-Jun-16 Buy 750
16-Jun-16 Sell 250
21-Jun-16 Sell 4000
5-Jul-16 Buy 1500
8-Jul-16 Buy 1400
21-Jul-16 Sell 4000
Thanks
Dear Myca ..You may kindly ask your broker to give capital gain statement (assuming you are investing through an online platform).
While calculating income from house can maintenance charges paid to society be deducted from income?
Dear Umesh,
You can deduct 30% standard deduction and also can deduct property taxes paid, if any.
Hi,
While calculating capital gain in shares how to arrive at cost of purchase and cost of selling? (whether brokerage, stt, st etc can be adjusted)
For saving bank account held in joint name if interest income can be divided and shown separately?
Dear umesh,
1 – Yes brokerage expenses can be deducted.
2 – Interest income can be divided as per the contribution ratio.
i receive dividends from mutual funds & shares.
I also receive interest from Tax Free Bonds .
Also i have earned profit from selling mfs & shares which i sold after 1 year of holding.
So i do not need to pay any tax on the profit i earned if i sold after 1 year ?
Where can i declare all this income. these are exempt from Tax.
Where Do i mention this in ITR-1 form ?
I see exempt income for reporting purpose ?
Can i mention it here ? is thr a cap to this ??
Dear siddharth,
Yes, you can report this under Exempt income column of ITR – 1.
Ideally if EI is more than Rs 5,000, one can use ITR 2A or ITR -2 but it is ok to file in ITR-1 too (CAs have mixed opinions on this).
What are different ways one can save beyond Rs. 150000/- for tax saving?
Dear Umesh..Kindly read: List of income tax deductions for AY 2017-18.
Dear Sir,
I have invested Reliance Regular saving Fund -Balanced Plan-Growth Plan Growth option in Feb.16 & Redumption in March 16 ,.
Where i can show Profit received from it in ITR -2 – Short Tern Capital gain from Equity or Non Equity .
Pls. guide.
regards,
Sumit
Dear Sumit.. Reliance Regular saving Fund -Balanced Plan, is an equity oriented fund. Currently the fund has around 69% allocation to direct equities (shares).
So, its STCG on equity funds. 15% is the tax rate (irrespective of your income tax slab rate).
Kindly refer to Part B (TI) & Schedule CG of ITR 2 form.
Could you help me explaining STCG and LTCG in case of ‘STP’ where some amount gets switched from liquid fund to equity fund every month. Apparently we never redeem the liquid fund or do we? while switching? assume STP is going for 2 to 3 years and then equity fund units are redeemed after 3-5 years? I could understand that while redeeming equity funds in the end, it will come under LTCG and won’t be taxed at all. But couldn’t figure out if gains on liquid fund will be taxed? Please advise.
Dear Tarun,
Redemption of Liquid fund units is allowed.
The process of units getting transferred from Liquid fund is considered as normal redemption.
So, the gains (if any) are treated as STCG or LTCG based on the holding period as explained in the article.
Thanks for your response Sreekanth. I understand it now that switching from liquid to equity fund is like normal redemption. Now suppose the NAV of liquid fund keep on increasing every month for some time, accordingly there will be STCG on monthly gains. Now this needs to be taxed as mentioned in your post. But when you say it will be taxed -“As per individual’s income tax bracket”, how do they come to know about individual tax bracket? I asked this assuming STCG will be deducted as TDS? Please correct me if I am wrong.
Dear Tarun,
Kindly note that they will not deduct Taxes here.
You as an investor has to show these STCGs (if any) while filing your Income Tax Return.
YOUR QUOTE”
“Now suppose the NAV of liquid fund keep on increasing every month for some time, accordingly there will be STCG on monthly gains. ”
Reply :
According to the Income tax : The Gain is taxable at the time of Redemption / switch out of Units only – Realized Gain.
Every month rising of NAV does not attract Tax, because it is unrealized Gain.
Is the indexation allowed for STCG calculations for non equity mutual fund units sales ? Particularly the mutual funds investing in international equity ? Considering the short term is now considered as less than 3 years, if sold after say 2 years, indexation should be applicable for STCG calculation as well, right ?
Dear Shantanu,
The benefit of indexation is available only to long-term capital.
Srikanth, the explanation you are providing us very helpful… Keep Rocking…Cheers.
Dear Srikanth,
I have some 10 lakh Rupees in my savings account.
Recently (after reading your posts) i thought i will put these money in Liquid funds.
But Bank manager is brain washing me, i can split the money to 50 k and make 20 deposits and i have not submitted the PAN details to the bank, he is saying there will not be any TDS. Moreover he is saying , for Liquid funds , AMC will deduct TDS before handover the money to you.
Is he is true ?
Please clarify.
Dear senthil,
If you invest Rs 10 Lakh in a bank, as per present income tax guidelines, banks are required to deduct tax at source (TDS) on deposits if the total interest earned on all your fixed deposits / recurring deposits in a bank (at all branches of the bank) is more than Rs.10,000 in a financial year.
Also, interest earned on FDs is a taxable income.
Read:
Avoid investing in FDs/RDs for longer period.
FDs/RDs – tax implications.
TDS & misconceptions.
For mutual funds, tax is deducted at source (TDS) while processing redemptions and switchouts for Non-Resident Indians (NRIs) only.
Read:
MF Taxation rules..
Why would you like to invest in Liquid funds?
I redeemed some units in a tax-saving mutual fund after holding it for over 1 year. Do I need to declare the long term capital gains while filing returns given it is a tax-saver?
Dear AMAL,
You can report the exempt income (LTCG) in ‘EI’ schedule of ITR.
Is the load and STT taxable?
Suppose I have 10 units of a mutual fund with NAV = 10. The net asset becomes Rs. 100. If I redeem all the units and get Rs. 85 out of Rs. 100. (Rs. 10 is deducted as load and Rs. 5 is deducted as STT.) In this case do I need to pay tax on Rs. 100 or Rs. 95 or Rs. 90?
… or Rs. 85?
Dear amvx9,
STT is not allowed as deduction.
Exit load can be considered as ‘expense’ (cost) related to transaction and can be deducted. So, my answer would be Rs 90.
Thanks Sreekanth!
Budget of Feb 2016 introduced tax on dividend income received by assesses if the total dividend income exceeds Rs. 10 lacs during the year. Does the dividend income received from investments in debt and equity mutual funds whether such dividend amount is paid-out or reinvested in the scheme be included in this 10 lacs ceiling or not?
Dear Ashwani,
I believe that dividend can be on both equity or debt funds and it is DIVIDEND income received and note re-invested.
Hi Sreekanth,
You have mentioned about different tax for listed funds and unlisted funds. I tried google but didn’t really understand what are listed funds. I have invested in hdfc liquid fund, reliance liquid fund, india bulls liquid fund and icici liquid fund. How do i know if they are listed or not
Dear Raj,
Non-Equity funds like FMPs (Fixed Maturity Plans Funds) can be listed on Stock exchanges after the initial NFO.
One can find information whether a fund is listed on stock exchanges or not by going through the scheme information documents (you can find them on fund house/AMC websites).
In case of LTCG for equity fund, I understand there is no capital gain tax. But, will the gain be added to my taxable income as earning?
Dear Sankar,
If it is added to your taxable income then you will end up in paying taxes, right?
LTCG on equity funds is tax-exempt. No need to add to your taxable income.
However, you can declare the LTCG amount as ‘Exempt income’ under ‘EI’ section of ITR.
Dear Sir,
Are Long Term Capital Gain on Mutual Funds – Liquid taxable? If yes, at which rate?
And aren’t they long-term when held for more than 36 months? Or is it 12 months?
I am specifically referring to “Reliance Liquidity – DD” class of Liquid Funds. Can you comment on that, sir?
Dear MRC,
Reliance Liquidity is a Debt oriented Liquid fund.
So, if you make a gain / profit on your investment in a Non-Equity Mutual Fund scheme (or in a Debt Fund) that you have held for over 3 years, it will be classified as Long Term Capital Gain.
STCG Tax rate on debt funds is @ of applicable income tax slab rate.
LTCG Tax rate on debt funds is @ 20%.
What is the Identification of Equity fund and non equity fund, and how to identified to see any document and recognize is it equity or non-equity.
please explaim
Dear Vaibhav..You can notice the investment objective of the Fund in scheme related documents or the same is available in online portals like valueresearchonline or moneycontrol etc.,
Also, you can check the Fund’s portfolio, the equity funds generally invest in direct shares and the allocation can be > 65%.
Hi Sreekanth,
If I sell all the units of a mutual fund and after a few days again purchase few units of same fund,
1)Will there be a new Folio number?Does it mean 100 to 150 rs transaction fee will be deducted again ?
2)If I sell the units of same fund 2nd time as well, will there be two capital gain statements ?
Thanks
raj
Dear Raj,
1 – Yes. The fees depends on type of fund and/or platform.
2 – Yes. CG can be STCG or LTCG.
In Case of debt fund STCG is taxed as per income bracket & LTCG @20% rate, If a person having income less than the taxable income including the debt long term capital gain , still he has to pay 20% of that as LTCG
Dear Rajeeve,
I believe that the un-exhausted basic exemption limit can be claimed against long term capital gain. If the total income – LTCG is below basic exemption limit then no tax liability (kindly note that tax deductions under Chapter VI A can not be deducted).
Very informative!!
Sir one person is holding an Indian resident status in various banks & MF co. besides the fact that he is actually NRI. Banks are not deducting any TDS which should be liable in the status of NRI. Now how should he show his Income in the return.
Dear S_Siffy ..It is wrong to do so. Kindly ask him to update his Residential status immediately and file the returns as NRI. Kindly take help of a CA.
Hi Sreekanth,
Nice to see your replies to many queries here.
Today I have a doubt on taxation on fixed deposit and mutual fund liquid fund.
Suppose my taxable annual income is more than 5 lakhs and I make 9000 rs profit from a fixed deposit, the bank will not deduct any tds but while filing ITR, should this 9000 be included and taxed? In that case FD is no better than a liquid mutual fund
Dear Raj ..Yes, interest income on FDs/RDs is a taxable income.
Kindly read:
Misconceptions on TDS.
RD & FDs interest income & taxes..
Very informative post. I have a related query. I am an NRI
I had a ICICI Pru FMP that I purchased in Feb 2014 and it was for 409 days. In April 2015, I was advised to switch it to another fund, else it would come under STCG (< 3 years as per Financial Act 2014). However, during the transfer the fund manager has deducted 30% TDS and the balance amount was switched to ICICI Balance Adv Fund.
I now need to know how to handled this TDS amount in my tax returns. Do I need to take this as STCG in my tax returns or since I switched the funds, will it come under LTCG?
Appreciate your clarification on this.
Dear Mr. Fernandes
The SWITCH is treated as normal redemption for taxation purposes, hence the TDS.
It is STCG only as FMPs are treated as Debt funds.
Hi
I started Equity mutual funds SIP in july 2015. iam planning to continue SIP till 2026. is capital gain is taxable in 2026?
Dear srikanth ..Capital Gain taxes are applicable only if you redeem (sell) the mutual fund units.
1. There is no Capital Gains Tax on equity MF held for more than one year, as on date (FY 2016-17).
2. Tax implications in future depends on policies by Govt. Presumably, it may not change.
Dear Sreekanth
I am an NRI working in UAE, have made short term capital gain of Rs.7Lakhs during the financial year 2015-2016, through sale of shares (the same amount has been reinvested via buying of other shares) and also TDS was deducted at 15% by Axis Bank in my PIS A/c.
Since i don’t have any other income from India. What would be the tax implications when i filing the tax returns?
Please advise..
Dear Sreejith,
If your status is NRI, your income which is accrued in India is taxable in India.
As you have STCG of more than basic exemption limit, you can file income tax return to get REFUND.
If no refund is applicable, a return need not be filed if income is only from STCG/LTCG and the TDS is already been deducted.
Very informative post.Perhaps setting off of STCG against STLoss and LT Gain too could have been explained.
Your valued reply Awaited.
P R Rao
Dear P R Rao ..Kindly read this article, can be useful : How to set-off Capital Losses?
Hello,
very informative article. Thanks for posting.
1. What is listed funds vs unlisted funds?
2. “The STCG tax rate on Non-Equity funds (or) Debt funds is as per the investor’s income tax slab rate” – For NRIs, if there is no income in India, mostly income tax slab rate is ZERO or may be 10% slab if there is rental income. But TDS on such funds is 30%, can they get tax refund? or it is flat 30% ?
Dear vanaja,
1 – Whether listed on Stock Exchanges or not??
2 – Yes, they can get the refund based on their tax liability.
I have taken VRS ,the amount whatever I got suppose 50 lacs and I purchased an equity mutual fund of all 50 lacs and hold for two years.After that I chosen systematic withdrawal plan of Rs. 50000 per month. Is there any taxation.
Dear DULAR..No taxes applicable on LTCG.
Dear Sir,
Please help me to know the tax implication for AY 2016-17 in the following transactions:
1. SBI TAX ADVANTAGE FUND SERIES I DIVIDEND purchased on 04.01.2008 at face value of Rs. 15000, redeemed on 16.07.2015 resulting Capital Gain of Rs. 20,551/-.
2.Franklin India High Growth Companies Fund – GROWTH a monthly SIP investment of Rs. 500/- for 36 months i.e total investment Rs. 18000/- (From May 2009 to April 2012) and redeemed on 06.04.2015 resulting Capital Gain Rs. 28,702/-.
3. L&T Equity shares (more than 365 days) buying price Rs. 10,181/- and sale on 21.07.2015 at Rs. 15821/- resulting Capital Gain Rs. 5,640/-.
It is further requested to advise whether the above transaction are to be shown in ITR Form during submission of tax return. Regret inconvenience.
Regards.
Shyam Mondal
Dear Shyam,
1 – It is LTCG on debt fund.
2 – The LTCG is tax exempt.
3 – LTCG is tax exempt.
2 & 3 can be shown in ‘Exempt income’ (EI) schedule of ITR form.
I have 2 lakhs in liquid funds. I would like to STP to an other debt fund. Investment in liquid funds is less than 3 years.
Should transferring from one debt fund to the other also invoke STCG
Dear JAIKUMAR..Yes. But Why would you like to do so? Reason for this strategy?
Hello Sreekant,
plz guide me in the following scenario:
My wife who is a housewife& doesn’t have any source of income.
If she invest lumpsum 60k in debt mutual fund & redeem 1k every month for invest in equity in SIP.
Hence, in every redemption from debt fund upto 3yrs, the interest earn will be STCG (though very nominal).
My question is, will she need to pay tax on the above STCG as it will be her only income & will be within the exemption limit of 2.5 Lakhs?
Dear Subhajit,
It is better she files ITR even-though the Capital Gains are negligible.
In case your taxable income including STCG is below exemption limit then you are not liable to any tax.
Thanks Sreekanth 🙂
Dear Sir,
Please guide me in following transactions which occured in F.Y. 2015 -16:
I have some units of ICICI Prudential Regular Saving Fund – Growth which were purchased in Sept 2014.
Then in Nov 2015 i redeem some units of ICICI Prudential Regular Saving Fund – Growth And some units are switched out to :
-> ICICI Prudential Balance Advantage Fund – Monthly Dividend
-> ICICI Prudential Corporate Bond Fund – Growth.
Now my query is:
1. Whether Capital gain is applcable?
2. If yes than whether Short term or long term and in redemption only or switching to new scheme also?
3. If capital gain also on switching to new scheme than can i claim deduction u/s 80C of the same?
4. Whether Dividend received on ICICI Prudential Corporate Bond Fund – Growth is exempt or taxable?
5. Which ITR i should file (Apart from this I have only interest income from FD and I have never filed ITR since my interest income never crossed basic exemption limit).
Dear Deep,
1 – Yes. ICICI Prudential Regular Saving Fund is a debt fund. In this case STCG (if any) would be applicable.
2 – STCG. Switching is treated as redemption.
3 – No.
4 – The dividend income received by a debt fund unit holder is also tax free. But, the mutual fund company has to pay a dividend distribution tax (DDT) before distributing this dividend income to its Unit-holders. DDT on Debt Mutual Funds is 28.84%.
5 – Kindly read: Which ITR form to file?
Sir thank you so much for reply
but let me explain the same query in detail:
I purchased ICICI Prudential Regular Saving Fund – Growth of Rs. 800000 on Sept 2014.
In this scheme interest is reinvested.
But in Nov 2015, i withdraw (in statement it is written redemption) interest part which is 102000.
And 800000( actual cost) was switched to two new scheme equally on the same date Nov 2015:
-> ICICI Prudential Balance Advantage Fund – Monthly Dividend: Rs.400000
-> ICICI Prudential Corporate Bond Fund – Growth: Rs.400000.
Please tell me what is taxable amount and in which head it will taxable?
Dear Deep,
If it is a Growth option then it is ‘Gains’ and not interest/dividend. So the gains are taxable (STCG). The applicable head is ‘Capital Gains’.
Thank you so much for quick reply…
Please correct me if i am wrong:
I have to show in ITR Full value of consideration as 902000 (800000 switched to new scheme + 102000 interest amt withdrawn/redeem)
Cost of acquisition 800000 (purchase amt)
So there by STCG will be 102000.
And i am showing this in ITR Short term capital gain from other assets.
Hi,
In FY 2015-16, I have a LTCG (after indexation) from selling Debt Funds of a little over 6 lakhs. All funds were held for over 3 years and hence qualify for indexation benefit with corresponding tax rate of 20% on this LTCG. I also have carryforward Long Term Capital Gains of over 6 lakhs from previous years (less than 8). My question: Can I offset the 6 lakh LTCG in fy 2015-16 against the carryforward losses? If so, does that mean I have no tax liability on the 6 lakh LTCG. I understand the carrforward LTCG losses will be reduced by 6 lakhs for FY 2016-17. Await your reply to this
Dear Rajeev,
I believe that it is LTCL (may be a type error).
These Long term capital losses (carry forward losses) are on which asset class?
I believe that Long Term Capital Losses arising from the sale of Shares, Mutual Funds etc., where STT (securities transaction tax) has been paid is not allowed to be set-off (or cannot be carry forwarded) against any other capital gain.
I also have carryforward Long Term Capital Gains of over 6 lakhs from previous years (less than 8). This was indeed an error as I have Long Term Capital losses carryforward from previous years and they are from Debt Mutual Funds funds where no STT was paid. Considering this, could my gain of over 6 lakhs be offset with these carryforward losses.
Thanks.
Dear Rajeev..In such a scenario, I believe that they can be set off.
Thanks
I was preparing for filing ITR and got confused about redemption and LTCG. Recently on redemption of equity oriented(65%and more) MF units after 12 months I got Rs 5.79 Lakh of which LTCG is Rs 2.67Lakh. This is Tax exempt as I understand. However I am not sure which ITR to use for FY 2015-1016
a) What amount is to be shown in exempted income, Rs 5.79L(Total Redemption amount) OR LTCG of Rs 2.67 L
b) Which ITR form is to be used as LTCG though non taxable is involved? Now in ITR1 you can show Exempt income without any limit. So ITR1 can be used to report LTCG as well. However ITR2 is now to be used for any CG and also has special column under ‘exempt income’ for LGCT on which STT has been paid. Even ITR1 has EI column. So does one use ITR1 or ITR2 ?
Please confirm
Dear nand,
a – LTCG as exempt income.
b – You can use ITR 1 and report exempt CG (Read: Which ITR form to file?)
Dear Sreekanth,
Thanks for your prompt response. Your blog is very very educative and you have been giving sound advise. I am really impressed and learning a lot. I have one more query. In Sep 2015 I converted some MFs from Regular to Direct plan as the agent was not bothered about performance of these MFs and never advised me. However I was ignorant of Taxation angle. Now I find that there has been a STCG of Rs 5000/- and STCL of Rs 18000/- leaving me with net STCL of 13000/-( Set off STCL against STCG). However I am not interested in carrying forward the loss and feel that I should forego it. I want to therefore file only ITR1 and report the LTCG (which as explained by you is Tax exempt) in EI column.
Please do advise if it is ok as otherwise every year hence forth I have to file ITR2.
Thanks in advance
Dear nand..In such a scenario and on a safer side, its better you file ITR 2. Forgoing is different & Reporting such transactions is different (compliance issue). Hope you got my point.
Read: How to set off Capital Losses?
Hello Sir,
1) Debt fund -Long term fund taxation will be applicable on the units redeemed?
2) What if I create a STP from this debt fund accumulations, say after 3 yrs, will the same LTCG be applicable.
3) LTCG be deducted (i mean TDS)
Dear Rashmi,
1 – Yes.
2 – Even for an STP, will attract Capital gains tax.
3 – Unable to understand your query.
hello, I am US based NRI having my savings in NRE FDs. Since interest is considered as income ..causing big tax bill in US hence I am planing to move the money from FD to Liquid funds as safe investment. My first question…Is it good idea or I am missing something.
2nd question – should I invest all to liquid /ultra short liquid funds or debt funds are better choice. I do not need money for at least 3 years.
Dear Kamal,
Kindly read: FATCA Compliance requirements for NRIs on MF investments.
For a 3 year horizon, you may consider MIP funds & Balanced funds (minor portion of your corpus).
Kindly read:
Best MIP Funds.
Best balanced funds.
Best Debt funds.
Good article. If I switch a mutual fund, should I show sale on (Fund A from where I made the switch) in the income tax return?
Thanks
Dear Raju..There is no need to show the ‘transaction details’ as such in your ITR, but you have to provide details of Capital gains (if any) & have to calculate the tax liability (if any) accordingly.
Hi Sreekanth, Thanks for your comments. So even in a switch I should show the capital gains right? Like I bought fund A for NAV 100 Rs and then after say 2 years switched to Fund B (Fund A NAV is 150 now) so show that as capital gain? It is an equity fund so there is no tax liability. But No money came to me (or to the bank). I saw that for switch also there were some STT paid, that is when I got this qn.
Your articles are very clear for one trying to file ITR by oneself. Thanks
KOTAK GOLD ETF bought in Dec 2008 was sold in Oct 2015. STT was deducted as well as brokerage etc.
Does this come under LTCG?
I have some CFL from sale/redemption of non equity mutual debt funds from previous two years. Can LTCG be set off against CFK?
Dear Sudha,
Yes it is LTCG.
Are C/F losses are STCL? Kindly read this article : How to set off capital losses?
Reposting, since I realised I made a mistake in spelling your name.. apologies
—-
Hi Shreekanth, Very nice clear article. I could help with your broad advice. My MNC employer offered us to invest into the france based parent company. India employees were able to subscribe to a fund that purchased shares of the parent company. The fund had a minimum assured return based on a formula which determined some value based on preceding average share price.
Thus the invested amount bought me certain units, and the amount was locked in for 5 years. The 5 years are over and I will get the redemption next month with some handsome returns.
The fund was Euro based. We provided a cheque in INR to company. The redemption amount is credited to India organization account who will be paying it back to us.
Will this be considered a LTCG? Or any other tax treatment will be applicable? Any things we should sort out with our company?
Dear Askey..To be frank I do not have answer to your query. Suggest you to kindly check with your Finance/Accounts team or with a Chartered Accountant. If you receive a reply from them, request you to update the information here, will be useful to all of us. Thank you!
Hi Sreekanth. Let me tell you that of all the hundreds of posts on the Internet, yours was the most clear and simple to understand. Very well written.
I have a few questions – please note that I am an NRI
1. If i invest in equity mutual funds (growth option) for my new born child, and redeem them on his/her 17th birthday, will there be any tax implication? If yes then please throw some light
2. If the mutual fund as stated above is redeemed after the child has turned 18 (after it is changed to major and all formalities done), will there be tax implications? If yes then please throw some light
Please also provide info on the above two questions for the scenario where my and my child’s status becomes resident indian in thecyear of redemption. (i.e,please provide answer for both nri and resident cases)
Thanks.
Dear Verma,
Thank you for the appreciation!
1 – Before 17 years means the kid is still a minor, so Tax incidence for minor children falls on the parent or guardian of the child. But as you are investing in Equity funds, any income should be clubbed with parents income, but here again dividends received (if any) are tax-free. Long term Capital gains (if any) are also tax exempt.
If you withdraw the investment within a year, at this time your child is a minor, you will be liable to pay Short Term Capital Gains tax because a minor’s income is clubbed with that of the parent with the higher income.
A more convenient way to go about this might to be invest in your name, since investing in child’s name doesn’t give you any tax benefit. However, if you want to invest in Children’s oriented funds, you can do it only in your child’s name as only children less than 18-years of age can be unitholders in the fund.
2 – The tax incidence will then shift to major kid. Long term capital gains are tax-free.
Hi Sreekanth. Thanks for your reply. So for example I invest in an equity mutual fund – growth option and after 20 years its value becomes 1 crore and i decide to redeem the amount. Will i receive full 1 crore or any tax will be levied?
Dear Verma..No tax on LTCG form an equity fund.
Hi, I have gifted more than 2 lac to my wife in fin year 2015-16 and she has invested it in 2 mutual funds (Equity & Liquid) and still holding them. Her income from profession is below 2.5 lac/PA for 2015-16. Does she need to file income tax return for financial year 2015-16?
Dear Amit,
As she is holding the funds, there won’t be any tax implications. However kindly note that any income/gains made on these investments have to be clubbed to your income. It is better to file ITR.
Kindly read:
Gifts – taxable or tax-free?
Gifts & tax implications.
Is switching from debt fund to equity funds prior to completion of 36 months considered as redemption and tax applicable?
Regards
Hari
A Senior citizen
Dear Srinivasan,
Yes, this will be considered as a redemption. STCG (if any) tax rules are applicable.
Thank you.
One more query, I.e. where to look for indexation figures details
Regards
Hari
Dear Srinivasan..Check out this article (click here)..
I have invested in a liquid mutual fund with the option of re-investment of dividend. If I sell after one year will the dividend amount which has been re-invested also be taxed?
Dear Nita..Kindly note that the gains (if any) are taxed.
Please if you dint know then dont mislead
liquid fund dividend payout is tax free to the investor.
As fund management companies pays takes before giving the dividend to tax authorities.
Dear Humayun..Kindly note that I am not mis-leading..I was referring to capital gains (if any)..
(The dividend taxation part is already been provided in the article).
Nita’s question is only about liquid Dividend Taxation, not capital gains …….
and dividend gains for investor we will have that amount totally tax free on our hand as fund house will pay on behalf of investor round dividend amounts to tax authorities!
I have Long Term Capital Gains on equity mutual funds. I know that this is not taxable.
Even then, do I still need to report Long term Capital Gains on Equity Mutual Funds in ITR 2?
Please clarify.
Dear Karbi..You can provide such transaction details under ‘Schedule EI’ (Exempted Income) of ITR.
Sir,
Suppose,if NRI invests in mutual funds from NRE account on repatriable basis,whether the returns on mutual funds are taxable or not?
Dear Rama..The tax rates are provided in the article and are dependent on the type of funds.
Dear Sir
I invested in Gold Fund through SIP from April 2013 to Dec 2015 . I redeemed units purchased during 2013-14(April 2013 to March 2013) in April 2016. Against the investment of Rs 72,000 on the units redeemed , I got Rs 67,000. It is STCL.
Now I want to redeem units purchased during 2014-15 (April 2014 to March 2015) in May 2016 due to my personnel problem. As per my calculation, I will be getting Rs 76,000 against the investment of Rs. 72,000.
Thus I will be getting Rs. 1,43,000 against the total investment of Rs 1,44,000 during 2013-15. i.e. loss of Rs. 1,000 during financial year 2016-17.
I think it will be treated as Short Term Capital Loss. Can you guide me whether i am right or wrong.
Dear Aditya,
For taxation purposes, gold funds are also treated as Debt funds. So, if the units are held for less than 3 years and redeemed, gain/loss will be treated as STCG/STCL.
Read:
How to Turn Short term capital losses into Gains?
Thank you Sir.
I am redeeming units invested in gold funds less than three years . According to your reply, the loss of Rs. 1000 on total redemption of units will be treated as STCL during 2016-17
If I have made short term capital gain, should I visit a CA to file my ITR-2 and submit them capital gain statements ?Or can I do it online itself? If I do it online, how can I show the capital gain statements ? Is it not needed to show?
Thanks in advance
Dear Mr.Srikanth,
I am under NRI category, working Overseas and living in India.
I have been surcharging and selling shares online through my Portfolio Investment Scheme ( PIS ) through my Bank , Trading account.
All my selling of shares , bankers has deducted Short Term capital gain tax on the Profits ( gains ) of every selling, as I am NRI.
Please advise, after deducting STCG Tax by my bank, , Shall I need to pay Income Tax for all my Profits ( gains ) as per tax slab , on yearly basis ?
Regards
Selvaraju
Dear Selvaraju,
It is at the rate of 15% right?
Kindly note that Short term capital gain tax on Stocks and Equity oriented funds is flat 15% irrespective of income slab of the tax payer.
So, you can just show these details in your ITR and file it accordingly.
Does that mean, only shares are automatically taxed at 15% when sold within 1 year where as for mutual funds (equity based ) sold within 1 year, we have to calculate and pay tax at the time of tax filing?
Dear Rajendra..Suggest you to kindly take help of a CA and file your taxes. You may also get detailed answers to your taxation queries from a CA.
Hi Sreekanth,
I have sold 4 mutual funds(sbi pharma fund , uti transport & logistics fund , hdfc liquid fund, franklin india index fund, reliance media & entertainment fund) withing 1 year and made little profit from each of them.
However there is no mention of STCG in the redemption receipts .There is only STT & EXIT LOAD mentioned in them . That means there was no tax deducted.
Is it their mistake not to deduct STCG? Should I show all these receipts while filing ITRV?
Thanks
Dear Rajendra..Kindly note that STCG if any, has to be paid by you by including the gains in Income Tax Return.
Thanks for clarifying me on this. So among the mutual funds that I mentioned above , is 15% tax deduction applicable for all of them? or will it be based on my tax slab?
Thanks again
Dear Rajendra,
15% is for on STCG on Equity oriented funds.
LTCG taxes are NIL FOR equity oriented funds. If you have held the units of all these funds (except HDFC liquid fund) for more than 12 months then no taxes are applicable.
like I said before, I have sold all these funds within 1 year, so they all fall for STCG now. So I believe except hdfc liquid fund I have to pay 15% tax on other funds mentioned. For hdfc liquid fund (debt fund?) I believe tax will be as per my tax slab and not 15%.I also read somewhere that if I am paying brokerage fee (in my case it is hdfc broker) that amount can be subtracted from the capital gains. Not sure how true is that.Even if it true, the only proof I can show is bank statement. This is all very confusing
Hi Sir,
I have one question regarding the tax part of a mutual fund.
Suppose I have invested Rs 1 lakh in SBI pharma fund (Regular) through SIP from 2013 Jan -2015 Dec. (Monthly Rs 3000/-). Consider that I sold all units in Jan 2016 and got Rs 1,50,000/-.
I am a salaried class employee.
Should I ever show this transaction in my IT return? If yes, where? Will there be any tax liability? (I understand that there is NO tax liability)
Is there any problem if I do not show this at all anywhere in the IT return? Please guide me.
Yes, you should show this in your IT returns when you file you tax returns for FY 2015-16. Yes, there is tax liability, because if you gained(sale price – Purchase price). There is a problem, if you don’t show it in your returns, that’s fraud.
Dear Rahul..As this is a SIP, some of the units might have LTCG and some might fall under STCG category.
The LTCG taxes are not applicable on units held for more than 12 months as SBI pharma is a equity oriented fund.
For the remaining units you need to pay STCG taxes. Suggest you to download or ask your agent regarding Capital gain statement and accordingly calculate your tax liability.
Hi Sreekanth. Thanks for the answer. That is fine.
Another question: Suppose if the SIP is for 3 years. All 36 months, some amount is deducted from my SB account and purchased MF units. Now, when 3 years is over, will I get the money automatically? Or should I sell the units?
Can I hold the units without selling and without doing anymore SIPs for another couple of years? Will it become dormant or something?
Dear Rahul,
One should sell/redeem the units.
Yes, you can continue to hold and remain invested. No, won’t become dormant.
Many Thanks for all the information’s that you have provides in unbiased way. following question. Since there is no tax on long term capital gain on equity but there is a tax on non equity so could you please confirm if my following MF with long term capital gain will fall under equity or not?
1) frankin India tax sheild
2) axis long term equity fund.
3) TATA balanced fund
4) Franklin India Prima plus fund
5) Franklin India small company fund
6) HDFC Balanced fund
Many Thanks
Dear Prem..All the listed funds are Equity oriented ones..
Hi Sreekanth,
Both STCG & LTCG is taxable as per the income tax slabe? Will it deducted at the time of redemption by fund house itself of the investor has to pay directly to income tax department?
Also tell as per the budget what is rate of STCG & LTCG on Debt fund?
Thanks
Deepak
Dear Deepak,
Kindly note that only in case of STCG on Debt funds, the tax rate is dependent on the income tax slab rate. Fund house won’t deduct the applicable taxes, the resident Indian has to show this in his/her Income Tax Return and file taxes accordingly.
Hello ,my question is if I invest in monthly income plan around r.s/ 1,50,000 then what margin of amount averagely will I get quarterly in a particular year?
Dear Dibyendu..Kindly read: MF MIPs – Details & Returns analysis.
Hi,
Couple of questions
1) In tax saving MF (ELSS) : if I sell after 3 years, do I need to pay income tax on the profit as per my income tax slab?
2) In Equity MF : if I sell after 1 year, do I need to pay income tax on profit as per my income tax slab?
Dear Ani,
1 – No.
2 – No.
hello , sreekanth
Its really good to see you answering the questions so nicely.
I do have a question
1- I have normal equity funds in my portfolilo, Now i want to switch to direct funds for same scheme , i want to know what NAV will be applicable.?..nav for the direct plan?…and if yes ..will i loose some units in the adjustment ..as direct plans nav are expensive then the normal plan.?
2-what other charges are applicable if my equity investment is more then 1 yr , for switching?
thank you
regards
shaleen
thanks
Dear shaleen,
1 – High NAV Vs Low NAV is a misconception. What really matters is % of returns. If you are comfortable investing and managing DIRECT funds, kindly go ahead.
2 – Read:
What are Direct mutual funds?
MF Utility for direct mutual fund plans.
Direct Plans Vs Regular plans – Analysis of Returns.
correction sir,I have invested i n sbi magnum mid cap fund(not the sbi magnum fund)
Dear rajesh,
You may consider ICICI Prudential Value Discovery fund, Franklin Prima Plus Fund & TATA Balanced fund.
Read:
Best Equity mutual funds 2016.
Hello sir…
I am investing in sbi magnum fund 2000/month for 15 years,have debt exposure via ppf n bank fd’s.
sir I want to make further investment in MF for long term(15-20yr)
I hv been told by my friend that sbi blue chip fund will z good for me…sir plz tell should I invest in this fund or should go any other fund?
or should I go for balance fund?
thanks sir.
I am 30yr old,and salary 3.5lac/annum.
Hi sir,
I used to keep about 3 lac rupee in HDFC salary account. From last month i started to keep them in liquid fund. Now i have about 2.5 lac in Liquid fund (3 schemes) and 50 K in Reliance money manager fund. Consider my 2.5 lac Rupee become 2.56 lac after sometime and i withdraw 2.5lac from it after less than 11 month of investment and keep 6000 rupee for say more than 1/3 year what will be tax payable.
Please consider same situation for Reliance money manager fund.
What to do with idle money? Can you suggest some funds ?
Dear Prabhash..May I know the reason for investing in Liquid funds?
They are safe. they provide double the returns compared to FD.
Dear Prabhash..The Short term capital gain taxes will be applicable on Rs 6k. The tax rate is as per your income tax slab rate.
Hi
you mentioned above article that
1)LTCG for Non equity funds as 20% with indexations .Could you please explain with an example what indexation means
2) How Debt funds are beneficial compared to FD with respect to TDS…?
as we are paying tax based on tax bracket(sTCG) and 20%( LTCG) which we pay even for FDs.
DO you have an article with illustration how TDS is saved with Debt mutual funds compared to FDs?
Thanks
Bala V
Dear Bala,
1 – Kindly go through this useful article – click here..
2 – Kindly note that Capital gains is paid only on redemption right whereas FDs its not the case. Also, it depends on the tax slab that an investor belongs to.
Thanks dude…you are too good and prompt
Hello Shreekanth,
I am an NRI and planning to return back to india. At present I want to invest a sum of 50 lakh indian rupees for my child future education. The money will be required after 10 year.
can you please advise me where should i invest the money.
Regards
Ram
Dear Ram,
Do you have sufficient life insurance & health insurance cover?
Kindly go through below articles and revert to me;
Kid’s Education goal planning calculator.
List of Best Investment Options.
Sreekanth,
At present I dont have any life insurance or health cover in India.
I read the article and start leaning towards balanced mutual fund.
Regards
Ram
Dear Ram,
Kindly go through below articles;
If life is unpredictable, insurance can’t be optional.
Best Term insurance plans in India.
Financial planning pyramid.
Hi Sreekanth,
Suppose I purchased Liquidbee etf which calculate daily interest and add units at the end of month accordingly. What will be the tax implication on interest received.
Dear Manish..I believe that Tax is zero on Liquid Bees as it is in the form of dividends which are not subject to tax.
Hi Sreekanth,
Firstly would like to congratulate you on doing a credible job answering queries and throwing valuable insight for new and seasoned investors alike.
My questions –
I have been invested in several SIP’s since 2015 . I do understand from your article that LTCG will not be taxable if the MF’s are equity oriented. Can you throw some light on these specific MF investments that I have made ? Would LTCG be applied on these if I redeem my units after 12 months? Franklin Build India Growth Fund, Franklin India Prima Plus Growth Fund, Franklin India Smaller Companies Fund, Reliance Equity Opportunities Fund – Growth, SBI Blue Chip Fund -Growth , ICICI Prudential Long Term Equity Fund (ELSS) . Please advise on the above list.
Secondly, after redemption, if I am not a salaried employee at that point, how will taxes be deducted (if any). How different would ITR filing be for me ? And if all my capital gains are LTCG , then does that mean that I dont have to file my ITR with respect to these gains?
Would be great if you could clarify!
Thanks,
Abhishek
Dear Abhishek,
The mentioned funds are equity oriented funds and LTCG taxes are not applicable. Kindly note that ELSS fund has a lock-in period of 3 year.
If you are not salaried, you still have to file your ITR (have to choose applicable ITR based on sources of income) if your total income is above basic exemption slab.