Mutual Fund taxation

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    Tax Reckon er 2018-2019
     
    Snapshot of Tax rates specific to Mutual Funds
     
    The rates are applicable for the financial year 2018-19 and subject to enactment of the Finance Bill, 2018
     
     
      Effective : 1st. April 2018.
     
    1. Income Tax Rates
    For Individuals, Hindu Undivided Family, Association of Persons, Body of
    Individuals and Artificial juridical persons
     
    Total Income Tax Rates
    Up to Rs. 2,50,000 (a)(b)(d) NIL
    Rs. 2,50,001 to Rs. 5,00,000(d)(e) 5%
    Rs. 5,00,001 to Rs. 10,00,000(d) 20%
    Rs. 10,00,001 and above(c)(d) 30%
       
      (a) In case of a resident individual of the age of 60 years or above but below 80 years, the basic exemption limit is Rs. 300,000.
    (b) In case of a resident individual of age of 80 years or above, the basic exemption limit is Rs 500,000.
    (c) Surcharge at 15% on base tax, is applicable where income exceeds Rs. 1 crore and at 10% where income exceeds Rs 50 lakhs but does not exceed Rs. 1 crore. Marginal relief for such person is available.
    (d) Finance Bill, 2018 provides for Health and Education cess @ 4% on aggregate of base tax and surcharge.
    (e) A rebate of lower of actual tax liability or Rs. 2,500 in case of individuals having total income of less than Rs. 350,000.
       
    2. Securities Transaction Tax (STT)
    STT is levied on the value of taxable securities transactions as under.
     
    Transaction Rates Payable By
    Purchase/Sale of equity shares (delivery based) 0.1% Purchaser/Seller
    Purchase of units of equity oriented mutual fund Nil Purchaser
    Sale of units of equity oriented mutual fund 0.001% Seller (delivery based) 0.001% Seller
    Sale of equity shares, units of equity oriented mutual fund (non-delivery based) 0.025% Seller
    Sale of a option in securities 0.05%* Seller
    Sale of an option in securities, where option is exercised 0.125% Purchaser
    Sale of a futures in securities 0.01% Seller
    Sale of units of an equity oriented fund to the Mutual Fund 0.001% Seller
    Sale of unlisted equity shares and units of business trust under an initial offer 0.2% Seller
       
       
    3. Special rates for non-residents as per domestic provisions
    (1) The following incomes in the case of non-resident are taxed at special rates on gross basis:
     
    Transaction Rates (a)
    Dividend (b) 20%
    Interest received on loans given in foreign 20% currency to Indian concern or Government of India (not being interest referred to in section 194LB or section 194LC) 20%
    Income received in respect of units purchased in 20% foreign currency of specifies Mutual Funds / UTI 20%
    Royalty or fees for technical services 10%
    Interest income from a notified infrastructure 5% debt fund, specified loan agreement and specified long-term bonds 5%
    Interest on FCCB, FCEB / Dividend on GDRs(b) 10%
       
      (a) These rates will further increase by applicable surcharge and education cess.
    (b) Other than dividends on which DDT has been paid.
    (c) In case the non-resident has a Permanent Establishment (PE) in India and the royalty/ fees for technical services paid is effectively connected with such PE, the same is taxable at 40% (plus applicable surcharge and education cess) on net basis.
       
      (2) Tax on non-resident sportsmen or sports association on specified income @ 20% plus applicable surcharge and education cess.
       
     
    4. Capital Gains rates applicable to unit holders as per domestic provisions
     
    Transaction Short-term capital gains tax rates (a) Long-term capital gains tax rates (a)(b)
    Sale transactions of equity shares / unit of an equity oriented fund which attract STT 15% 10%
    Sale transaction other than mentioned above:
    Individuals (resident and non-residents) Progressive slab rates 20% / 10%©
    Firms 30%
    Resident Companies 30%(d) / 25%(e)
    Overseas financial organizations specified in section 115AB 40% (corporate) 30% (non corporate) 10%
    FII's 30% 10%
    Other Foreign companies 40% 20% / 10%(c)
    Local authority 30% 20% / 10%
    Co-operative society rates Progressive slab
     

    (a) These rates will further increase by applicable surcharge & education cess.
    (b) Indexation benefit as applicable
    (c) Long term capital gains arising to a non-resident from transfer of unlisted securities or shares of a company, not being a company in which the public are substantially interested, subject to 10 per cent tax (without benefit of indexation and foreign currency fluctuation
    (d) This rate applies to companies other than companies engaged in manufacturing business who are proposed to be taxed at lower rate subject to fulfillment of certain conditions
    (e)If total turnover or gross receipts of the financial year 2016-17 does not exceed Rs. 250 crores.

       
    5. Dividend Income :
    Additional tax of 10% (plus applicable surcharge and health and education cess) is applicable in case of all resident tax payers, excluding domestic companies and few other specified entities for dividend income of more than Rs. 10,00,000 received from a domestic company or companies.
    Personal Tax Scenarios (Amount in Rupees)
    Individual Total Income
    1,000,000 5,000,000 11,000,000
    Tax in FY 2017-18 1,15,875 1,657,013 3,686,756
    Tax in FY 2018-19 1,17,000 1,673,100 3,722,550
    Additional Tax Burden/(Savings) 1,125 16,085 35,794
    Additional Tax Burden/ (Savings) (%) 0.97% 0.97% 0.97%
       
    Resident senior citizen (age of 60 years but below 80 years) Total Income
    1,000,000 5,000,000 11,000,000
    Tax in FY 2017-18 1,13,300 1,654,180 3,683,795
    Tax in FY 2018-19 1,14,400 1,670,240 3,719,560
    Additional Tax Burden/(Savings) 1,100 16,060 35,765
    Additional Tax Burden/ (Savings) (%) 0.97% 0.97% 0.97%
    Resident very senior citizen at the age of 80 years and above Total Income
    1,000,000 5,000,000 11,000,000
    Tax in FY 2017-18 1,03,000 1,642,850 3,671,950
    Tax in FY 2018-19 1,04,000 1,658,800 3,707,600
    Additional Tax Burden/ (Savings) 1,000 15,950 35,650
    Additional Tax Burden/ (Savings) (%) 0.97% 0.97% 0.97%
    Marginal relief as applicable would be available
     
    Tax Implications on Dividend received by Unit holders
      Individual HUF Domestic Company NRI
    Dividend
    Equity oriented Schemes Nil Nil Nil
    Debt oriented Schemes Nil Nil Nil
     
    Tax on Distributed income rates (payable by the scheme)**
    Equity oriented Schemes* 10% + 12% Surcharge + 4% Cess = 11.648% 10% + 12% Surcharge + 4% Cess = 11.648% 10% + 12% Surcharge + 4% Cess = 11.648%
    money market and Liquid schemes 25% + 12% Surcharge + 4% Cess =29.12 % 30% + 12% Surcharge + 4% Cess=34.944 % 25% + 12% Surcharge + 4% Cess=29.12 %
    Infrastructure Debt Fund 25% + 12% Surcharge + 4% Cess=29.12 % 30% + 12% Surcharge + 4% Cess=34.944 % 5% + 12% Surcharge + 4% Cess=5.824 %
     
    * Security transaction tax (STT) will be deducted on equity funds at the time of redemption / switch to the other schemes / sale of units.

    ** For the purpose of determining the tax payable by the scheme, the amount of distributed income has to be increased to such amount as would, after reduction of tax on such increased amount, be equal to the income distributed by the Mutual Fund. In other words, the amount payable to unit holders is to be grossed up for determining the tax payable and accordingly, the effective tax rate would be higher.

    The above-mentioned rate is without considering the grossing up.

    Surcharge mentioned in the above table is payable on base tax. Further, "Education cess" and "Secondary and Higher Education cess" is proposed to be discontinued. However, new cess called Health and Education Cess is proposed to be levied at 4% on aggregate of base tax and surcharge.
       
    Capital Gain Taxation  
      Individual / HUF $ Domestic Company @ NRI $ #
    Equity Oriented Schemes
    Long Term Capital Gains (units held for more than 12 months) :: Short Term Capital Gains (units held for 12 months or less)
    Long Term capital gains 10%* 10%* 10%*
    Short term capital gains 15% 15% 15%
     
    Other Than Equity Oriented Schemes
    Long Term Capital Gains(units held for more than 36 months) :: Short Term Capital Gains (units held for 36 months or less )
    Long Term capital gains 20% 20% Listed - 20%
    Unlisted - 10%
    Short term capital gains 30% ^ 30% ^ ^ / 25%^ ^ ^ 30% ^
     
    Tax Deducted at Source (Applicable only to NRI Investors)#
      Short term capital gains$ Long term capital gains$
    Equity oriented Schemes 15% 10%
    Other than equity oriented Schemes 30% ^ Listed - 20%&
    Unlisted - 10%*
     
    $ Surcharge at 15% to be levied in case of individual/ HUF unit holders where their respective income exceeds Rs 1 crore.
    @ Surcharge at 7% to be levied for domestic corporate unit holders where income exceeds Rs 1 crore but less than 10 crore's and at 12%, where income exceeds 10 crore's.
    # Short term/ long term capital gain tax will be deducted at the time of redemption of units in case of NRI investors.
    & After providing indexation.
    * Without indexation and without taking into consideration foreign exchange fluctuation
    ^ Assuming the investor falls into highest tax bracket.
    $ @ Education Cess at 3% will continue to apply on aggregate of tax and surcharge.
    ^^This rate applies to companies other than companies engaged in manufacturing business who are proposed to be taxed at lower rate subject to fulfillment of certain conditions. Further, the domestic companies are subject to minimum alternate tax not specified in above tax rates.
    Transfer of units upon consolidation of mutual fund schemes of two or more schemes of equity oriented fund or two or more schemes of a fund other than equity oriented fund in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains.
     
     
    The Finance Bill, 2016 proposes to provide tax exemption to unit holders vis-à-vis transfer of units upon consolidation of the plans within a scheme of mutual fund in accordance with SEBI (Mutual Funds) Regulations, 1996.
    In the absence of PAN of the investors, withholding tax / TDS applies at a higher rate if tax is deductible on the amount payable to such investor. The Finance Bill, 2016 proposes to provide relaxation to nonresidents from deduction of tax at higher rate in the absence of PAN subject to fulfillment of certain conditions.
    Dividend Stripping: The loss due to sale of units in the schemes (where dividend is tax free) will not be available for setoff to the extent of tax free dividend declared; if units are:
    (A) bought within three months prior to the record date fixed for dividend declaration; and (B) sold within nine months after the record date fixed for dividend declaration.

    Bonus Stripping: The loss due to sale of original units in the schemes, where bonus units are issued, will not be available for set off; if original units are: (A) bought within three months prior to the record date fixed for allotment of bonus units; and and (B) sold within nine months after the record date fixed for allotment of bonus units. However, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such unsold bonus units.
    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
     
    Disclaimer: The information set out above is included for general information purposes only and does not constitute legal or tax advice. In view of the individual nature of the tax consequences, each investor is advised to consult his or her own tax consultant with respect to specific tax implications arising out of their participation in the Scheme. Income Tax benefits to the mutual fund & to the unit holder is in accordance with the prevailing tax laws as certified by the mutual funds tax consultant. Any action taken by you on the basis of the information contained herein is your responsibility alone.