Tax on Mutual Fund Investment

If you are new to mutual fund investments and would like to know how taxes are levied on the returns that we get from mutual fund investments and also would like to know what will be tax that you need to pay in case you opt for a dividend pay out method of investment, then read the information mentioned below:

Tax on mutual funds

Dividend on equity MF schemes are totally tax free. The amount of profit that you get on the redemption of your investment in a equity mutual fund is totally tax free (long term capital gains tax is 0 on equity mutual fund schemes) if you redeem the mutual fund after a period of one year from the date of aquisition of the scheme. If you redeem the investment before a period of one year, then the profit will be taxed at a rate of 10% as short-term capital gains.

Taxation depends on the time you hold the mutual fund

• As mentioned above, if you hold the funds for less than one year, your capital gains are taxed at 10% of your gains whereas if you hold for more than a year then no tax is levied on capital gains.
• You must understand that as per the present rule, dividends are non-taxable in the hands of the investor, but the fund pays the relevant taxes for distribution of the dividends. Hence if you are not expecting a regular income from your investments in form of dividends (regularity determined by markets of course), then it would be better to opt for growth option.
• You may also note that your capital losses can be shown to get reduction in taxable income. Therefore, this option can be intelligently exploited by investing in a fund giving dividends and selling it at a lesser rate than your buying price and yet make double profit.
• Reduce tax outgo and wait for a reasonable increase in NAV post div to cover your entry and exit loads and other expenses.

Are the implications of tax on mutual fund investments are same for an NRI too? How can I show that my fund has given me losses and how can I claim for the tax exemption for the loss incurred? Is there any specific duration within which I should show the losses? Does the one year rule of taxation on funds apply for the losses as well?

Yes, there is no difference between RI and NRI in rate of TAX. Difference is TDC deduction for short term capital gains (STCG). For NRI, TDS will be deducted.