Professional Documents
Culture Documents
3 3-Taxation in Mutual Fund - Basic - March 2016 PDF
3 3-Taxation in Mutual Fund - Basic - March 2016 PDF
Taxation on Mutual Fund Income
www.prudentcorporate.com
Areas Covered
• Classification of asset class
based on taxation point of view.
• Types of income from mutual
fund.
• Dividend & Capital Gain
• Tax treatment for Income from
the mutual funds.
• How to chose the option
(Growth, Div, Dividend Reinvest)
for the clients.
www.prudentcorporate.com
Classification based on Taxation rule
• Equity
‐ More than 65% of money is
invested into equity.
• Arbitrage
• Equity Savings
• Some Dynamic Asset
Allocation
• All equity funds
• Non Equity
Less than 65%
money into Equity
• All Debt schemes
www.prudentcorporate.com
Types of Income
• DIVIDEND
– Paid out of the distributable
income
• CAPITAL GAIN
– Difference of NAV
(Gain other than dividend)
www.prudentcorporate.com
Case Study
Fund A
– Investment Amount Rs 100000/ at NAV of Rs 10/
– NAV of the Fund Rs 15/‐
– Dividend Declared – 20%
– NAV of the Fund At the time of redemption – Rs 14
www.prudentcorporate.com
How Dividend is Calculated
• Dividend is declared on the Face
Value and not on NAV
– Div Rs 2 Per Unit
– Total Unit * Per Unit Dividend
– 10000 * 2 = Rs 20000/‐
www.prudentcorporate.com
How Capital Gain is Calculated
• Capital Gain is the NAV difference of the
Redemption NAV and Investment NAV
– (Redemption NAV –
Investment NAV) * Total Units Sold
– (Rs 14 – Rs 10 )*(10000)
– Rs 4 * 10000 = Rs 40000/‐
www.prudentcorporate.com
Tax on Dividend Income
• EQUITY
– Tax Free
• DEBT –
– Tax free into the hand of investor
– Company need to pay dividend distribution tax (DDT)
• Individual – 25%+Surcharge
• Corporate – 30%+Surcharge
www.prudentcorporate.com
Types of Capital Gain
• Short Term Capital Gain
– Debt – Less than 36 Months
– Equity – Less than 12 Months
• Long Term Capital Gain
– Debt – More than 36 Months
– Equity – More than 12 months
www.prudentcorporate.com
Tax on Capital Gains
• Equity
– STCG – 15%
– LTCG – Tax Free
• Debt
– STCG – As per Tax Slab
– LTCG – 20% after indexation
www.prudentcorporate.com
What Is Indexation
When Non Equity oriented* mutual fund are sold
after 3 years, the gain due to change in NAV is called
Long term Capital Gain.
* Any fund investing less than 65% into the Indian equity and equity related securities, the
fund is considered as the non equity fund for the purpose of taxation.
www.prudentcorporate.com
How To Calculate Tax With Indexation
EXAMPLE:
Purchase in FY CII
Let's say that you have invested Rs 1 lakh in a 2012‐13 852
mutual fund on April 30, 2012 2015‐16 1081
According to the Cost Inflation Index levels Actual Cost*Index when units sold
Index when purchase
announced by the government every year,
the cost of acquisition would be deemed to 100000*1081
be Rs 1,26,878. 852
Your longterm capital gain on this =1,26,878
transaction is just (130000126878) Rs 3122.
The tax liability (20%) thus would be Rs 624.
www.prudentcorporate.com
FD vs Debt Funds
INDEXATION MAKES A DEBT FUND A SUPERIOR POSTTAX PRODUCT
COMPARED WITH FD, ASSUMING THAT THEY EARN THE SAME RETURNS.
www.prudentcorporate.com
Negative Compounding due to Tax
Value of Rs 5 Lacs after 20 years on various tax slabs
Return Assumed – 8% Inflation Index growth assumed – 7% www.prudentcorporate.com
Taxation Summery
20% after Individual/HUF/NRI ‐
Debt Schemes < 36 Months > 36 Months As per slab
Indexation 25%, Corporates ‐ 30%
www.prudentcorporate.com
Which Option to Select?
1) Equity Less than 12 months –
Dividend Payout?? Div or Div Reinvest
Growth??
2) Equity More than 12 months –
Growth is Ideal
3) Debt – Less than 36 months –
DivReinvest?? Div if tax bracket is
20% or else Growth
4) Debt More than 36 months –
Growth is Ideal
www.prudentcorporate.com
Summary
• Indentify the clients need.
• Analyze the tax impact of various
options available for the client.
• Considering the tax impact on
investment based on client’s
profile adds a lot of value to the
client’s portfolio and your advise.
www.prudentcorporate.com
Thank You
www.prudentcorporate.com