Taxablity of mutual fund
This query is : Resolved
14 April 2012
Dear friends
In case of Mutual fund,We have received Dividend. how we find out that AMC pay
DDT and the dividend Income, tax free in NRI investor hand.
secondly we have redeem these MF and arising loss, so can I carry forward these
losses in capital gain head. what is the tax rate if we got profit??
Investment from NRE account, we have Losses on redemption of MF and another
redemption of MF we got gain, so can we adjust??
In case of Mutual fund,We have received Dividend. how we find out that AMC pay
DDT and the dividend Income, tax free in NRI investor hand.
secondly we have redeem these MF and arising loss, so can I carry forward these
losses in capital gain head. what is the tax rate if we got profit??
Investment from NRE account, we have Losses on redemption of MF and another
redemption of MF we got gain, so can we adjust??
15 April 2012
Mutual funds in India can not distribute income / dividend without paying tax U/s 115-R. Such dividend is exempt U/s 10(35)(a).
.
In case of investment in Equity Oriented Funds, the redemption or sale transactions
are subject to Securities Transaction Tax and
as such Gains/(Loss) arising as a result of such sale/redemption is exempt from tax if such units are sold after 1 year.
(Section 10(38)).
Loss, being not forming part of income, is exempt and as such can not be c/fd.
.
Yes, you can adjust.
.
.
In case of investment in Equity Oriented Funds, the redemption or sale transactions
are subject to Securities Transaction Tax and
as such Gains/(Loss) arising as a result of such sale/redemption is exempt from tax if such units are sold after 1 year.
(Section 10(38)).
Loss, being not forming part of income, is exempt and as such can not be c/fd.
.
Yes, you can adjust.
.
17 April 2012
And what about short term loss and sec.94(7) will apply becoz dividend received every month from AMC
17 April 2012
The query can be replied if illustrated properly with factual data.
17 April 2012
Dear Sir
thank you for replying but i have not clearity
IDFC Mutual Fund purchased as on 29/08/2011 Rs.25 lakh and Redemption on dated : 06/03/2012 Rs.21.5 lakh
Dividend received on 13/09/11, 03/10/11, 01/11/11, 2/12/11, 2/1/2012,2/2/12,2/3/2012
Total dividend Rs.5,80,000/-
Loss on redemtion Rs.3,50,000/- (Sec.94(7) applicable?????)
Second ICICI Prud. short term plan purchase date:29/08/2011 and redemption 02/03/2012
no dividend was received but profit on redemption Rs.4,02,110/- AMC deduct TDS@30.9%
plz explain with details, what i have to do ??
thank you for replying but i have not clearity
IDFC Mutual Fund purchased as on 29/08/2011 Rs.25 lakh and Redemption on dated : 06/03/2012 Rs.21.5 lakh
Dividend received on 13/09/11, 03/10/11, 01/11/11, 2/12/11, 2/1/2012,2/2/12,2/3/2012
Total dividend Rs.5,80,000/-
Loss on redemtion Rs.3,50,000/- (Sec.94(7) applicable?????)
Second ICICI Prud. short term plan purchase date:29/08/2011 and redemption 02/03/2012
no dividend was received but profit on redemption Rs.4,02,110/- AMC deduct TDS@30.9%
plz explain with details, what i have to do ??
20 April 2012
When we compare the situation with the provisions of Section 94(7)-
.
1. Point of time of Purchase : Within 3 months prior to record date...
.
To my view, as you have purchased the IDFC Mutual Fund units on 29/08/2011 and immediately you were in receipt of Dividend, it can be said that you have purchased units just 15 days before the record date.
.
Here, the date of dividend is being considered as the record date by me, however you may argue differently by justifying your contention with the help of any such date fixed by the company.
.
In the absence of any such date indicated by you, if we go according to the IT Act in the Explanation (aa) to Section 94, it has been clearly defined that record date means the date as may be fixed by the AMC for the purpose of entitlement of the holder of the units to receive income or additional unit without any consideration, as the case may be.
2. Selling within 9 months from the record date.
This condition also gets satisfied.
3. The dividend received is exempt.
.
All the conditions of 94(7) are being satisfied and as such it will become applicable to your case. In such circumstances you are not eligible to claim STCL of Rs 350000/- as dividend received
absorbs the loss.
.
However, if you can prove that the record date has been declared by the AMC after 3 months from the date of purchase of units ,
then 94(7) will not apply.
.
.
1. Point of time of Purchase : Within 3 months prior to record date...
.
To my view, as you have purchased the IDFC Mutual Fund units on 29/08/2011 and immediately you were in receipt of Dividend, it can be said that you have purchased units just 15 days before the record date.
.
Here, the date of dividend is being considered as the record date by me, however you may argue differently by justifying your contention with the help of any such date fixed by the company.
.
In the absence of any such date indicated by you, if we go according to the IT Act in the Explanation (aa) to Section 94, it has been clearly defined that record date means the date as may be fixed by the AMC for the purpose of entitlement of the holder of the units to receive income or additional unit without any consideration, as the case may be.
2. Selling within 9 months from the record date.
This condition also gets satisfied.
3. The dividend received is exempt.
.
All the conditions of 94(7) are being satisfied and as such it will become applicable to your case. In such circumstances you are not eligible to claim STCL of Rs 350000/- as dividend received
absorbs the loss.
.
However, if you can prove that the record date has been declared by the AMC after 3 months from the date of purchase of units ,
then 94(7) will not apply.
.
20 April 2012
Thank you very much sir
One more doubt about sec.94 (7), In case of mutual fund units, purchase within a period of 3 months prior to record date and sells such units within a period of 9 months after such record date.
There are two conditions. –
1. Purchase within 3 Month prior to record date
2. Sell within 9 month after to record date
So I want to know that any one condition satisfy then sec.94 (7) will attract?? Or both the condition should be satisfying then sec.94 (7) will attract??
Please sir, light on it.
One more doubt about sec.94 (7), In case of mutual fund units, purchase within a period of 3 months prior to record date and sells such units within a period of 9 months after such record date.
There are two conditions. –
1. Purchase within 3 Month prior to record date
2. Sell within 9 month after to record date
So I want to know that any one condition satisfy then sec.94 (7) will attract?? Or both the condition should be satisfying then sec.94 (7) will attract??
Please sir, light on it.
26 July 2025
Great questions! Here's a clear explanation about **taxability of mutual fund dividends, capital gains, and applicability of Section 94(7) for your NRI client:**
---
### 1. **Dividend from Mutual Funds & Dividend Distribution Tax (DDT)**
* Mutual funds pay **Dividend Distribution Tax (DDT)** on dividends declared before distributing them.
* For the investor (including NRI), **dividends received from mutual funds are exempt from tax under Section 10(35)** (now replaced by Section 10(34) and later amendments) in India.
* So **dividend income is tax-free in the hands of NRI investors**.
* You can confirm that DDT was paid by checking AMC’s annual report or dividend statement (it’s disclosed there).
---
### 2. **Capital Gains on Redemption of Mutual Funds**
* **Equity Oriented Mutual Funds**:
* If units are held for **more than 12 months**, gains are treated as **Long Term Capital Gains (LTCG)** and are **exempt** under Section 10(38).
* If held for **less than 12 months**, gains are **Short Term Capital Gains (STCG)** and taxed at **15%** plus applicable surcharge and cess.
* Securities Transaction Tax (STT) is applicable on redemption.
* **Debt Oriented Mutual Funds**:
* LTCG (held more than 36 months) taxed at 20% with indexation.
* STCG (held less than 36 months) taxed as per slab rates.
---
### 3. **Losses on Redemption and Carry Forward**
* **Losses arising from redemption of mutual funds are capital losses** and can be **set off against capital gains** (both short term and long term capital gains).
* Losses can be **carried forward for 8 assessment years** if you have filed the return within the due date.
* Losses from **exempt capital gains (like LTCG from equity funds)** cannot be set off or carried forward.
---
### 4. **Section 94(7) - Dividend Stripping**
* **Section 94(7)** is an anti-avoidance provision. It applies if:
* You **purchase units within 3 months before the record date** (the date AMC fixes to identify investors eligible for dividend), and
* You **sell those units within 9 months after the record date**.
* If both conditions are met, the loss on sale is **disallowed to the extent of the dividend received** on those units.
* The dividend amount is treated as income, and losses cannot be claimed to the extent of that dividend.
* **Both conditions need to be satisfied together** for Section 94(7) to apply.
* If you can prove the record date was **more than 3 months after purchase**, then Section 94(7) will not apply.
---
### 5. **TDS on Redemption for NRI**
* TDS @ 30% (plus surcharge and cess) is deducted on capital gains for NRIs (unless reduced under DTAA).
* TDS on dividend is not applicable because dividend is tax-free in the hands of NRI after DDT.
---
### **Summary**
| Topic | Explanation |
| --------------------------- | --------------------------------------------------------------- |
| Dividend Income | Exempt in hands of NRI; AMC pays DDT |
| Capital Gains Tax | Equity MF: LTCG exempt after 1 year; STCG taxed @15% |
| Loss on Redemption | Can be set off against capital gains; carry forward allowed |
| Section 94(7) Applicability | Both conditions must be met to apply; disallows loss if applies |
| TDS on Redemption | Deducted @ 30.9% for NRIs; can claim credit under DTAA |
---
If you want, I can help you draft an Excel sheet or a detailed case summary with calculations based on your data. Would that help?
---
### 1. **Dividend from Mutual Funds & Dividend Distribution Tax (DDT)**
* Mutual funds pay **Dividend Distribution Tax (DDT)** on dividends declared before distributing them.
* For the investor (including NRI), **dividends received from mutual funds are exempt from tax under Section 10(35)** (now replaced by Section 10(34) and later amendments) in India.
* So **dividend income is tax-free in the hands of NRI investors**.
* You can confirm that DDT was paid by checking AMC’s annual report or dividend statement (it’s disclosed there).
---
### 2. **Capital Gains on Redemption of Mutual Funds**
* **Equity Oriented Mutual Funds**:
* If units are held for **more than 12 months**, gains are treated as **Long Term Capital Gains (LTCG)** and are **exempt** under Section 10(38).
* If held for **less than 12 months**, gains are **Short Term Capital Gains (STCG)** and taxed at **15%** plus applicable surcharge and cess.
* Securities Transaction Tax (STT) is applicable on redemption.
* **Debt Oriented Mutual Funds**:
* LTCG (held more than 36 months) taxed at 20% with indexation.
* STCG (held less than 36 months) taxed as per slab rates.
---
### 3. **Losses on Redemption and Carry Forward**
* **Losses arising from redemption of mutual funds are capital losses** and can be **set off against capital gains** (both short term and long term capital gains).
* Losses can be **carried forward for 8 assessment years** if you have filed the return within the due date.
* Losses from **exempt capital gains (like LTCG from equity funds)** cannot be set off or carried forward.
---
### 4. **Section 94(7) - Dividend Stripping**
* **Section 94(7)** is an anti-avoidance provision. It applies if:
* You **purchase units within 3 months before the record date** (the date AMC fixes to identify investors eligible for dividend), and
* You **sell those units within 9 months after the record date**.
* If both conditions are met, the loss on sale is **disallowed to the extent of the dividend received** on those units.
* The dividend amount is treated as income, and losses cannot be claimed to the extent of that dividend.
* **Both conditions need to be satisfied together** for Section 94(7) to apply.
* If you can prove the record date was **more than 3 months after purchase**, then Section 94(7) will not apply.
---
### 5. **TDS on Redemption for NRI**
* TDS @ 30% (plus surcharge and cess) is deducted on capital gains for NRIs (unless reduced under DTAA).
* TDS on dividend is not applicable because dividend is tax-free in the hands of NRI after DDT.
---
### **Summary**
| Topic | Explanation |
| --------------------------- | --------------------------------------------------------------- |
| Dividend Income | Exempt in hands of NRI; AMC pays DDT |
| Capital Gains Tax | Equity MF: LTCG exempt after 1 year; STCG taxed @15% |
| Loss on Redemption | Can be set off against capital gains; carry forward allowed |
| Section 94(7) Applicability | Both conditions must be met to apply; disallows loss if applies |
| TDS on Redemption | Deducted @ 30.9% for NRIs; can claim credit under DTAA |
---
If you want, I can help you draft an Excel sheet or a detailed case summary with calculations based on your data. Would that help?
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