TAX RECKONER 2015-16

Mutual Fund Taxation for Individuals/HUFs

Equity Mutual Funds – Units of equity mutual funds held for more than 12 months qualify as long-term capital asset and long term capital gains (LTCG) on equity mutual funds are tax-free or exempt from tax, while short term capital gains on equity mutual funds are taxed at 15%.

Non-Equity Mutual Funds – Units of non-equity mutual funds held for more than 36 months qualify as long-term capital asset and long term capital gains (LTCG) on non-equity mutual funds are taxed at 20% with indexation, while short term capital gains on non-equity mutual funds are taxed as per the slab rate of the individual/HUF investor.

Dividend Income – Dividend income is tax-free or exempt from tax in the hands of individual/HUF investors. Dividend Distribution Tax (DDT), which is applicable to non-equity schemes only, is paid by the mutual fund/asset management company.

Some Important Points:

1. Surcharge at the rate of 12% will be applicable to Individuals/HUFs having total income exceeding Rs. 1 crore.

2. Surcharge at the rate of 12% will be applicable to the domestic companies where the income exceeds Rs. 10 crore. Where income exceeds Rs. 1 crore but is less than Rs. 10 crore, surcharge of 7% will be applicable.

3. In order to qualify as long-term capital asset, the units of mutual funds (other than units of equity oriented funds) should be held for a period of more than 36 months. In the case of equity oriented funds, the units would qualify as long-term capital assets if held for more than 12 months.

4. In cases where the taxable income, reduced by the taxable long term capital gains of a resident individual/HUF is below the basic exemption limit, the long term capital gain will be reduced to the extent of this shortfall and only the balance of the long term capital gain is chargeable to income tax. The benefits of this provision are not available to NRIs.

5. For the purposes of determining the dividend distribution tax payable, the amount of distributed income shall be increased to such amount as would, after reduction of the dividend distribution tax on such increased amount at the specified tax rates, be equal to the amount of income distributed by the Mutual Fund.

6. Rebate of up to Rs. 2,000 available for resident individuals whose total income does not exceed Rs. 500,000.

7. (i) In the case of a resident individual of the age of 60 years or more but less than 80 years, the basic exemption limit is Rs. 300,000.

(ii) In the case of a resident individual of the age of 80 years or more, the basic exemption limit is Rs. 500,000.

(iii) Education cess is applicable at the rate of 2% on income-tax and secondary and higher education cess at the rate of 1% on income-tax.

Note: The rates above are based on the proposals in the Finance Bill, 2015. They will become a law once passed by both the Houses of Parliament and when they receive the assent of the President.