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Capital gains from dividend reinvestment

Saurav Ray (Executive (Accounts)) (32 Points)

19 March 2014

Dear Experts,

Do Capital Gains arise on Dividends reinvested in Mutual Fund Scheme? Please explain in detail.

Thanks in advance

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5 Replies

Manoj Mehta (Head Of Department (Accounts & Finance)) (1479 Points)
Replied 19 March 2014

Dear Sir

As per section 10(38) capital gain will be exempt in your case. Please refer to section for more details

Regards

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Sathya Sankeerth K N (Chartered Accountant) (429 Points)
Replied 19 March 2014

We can apply Sec 10(38) only if it is an Equity oriented mutual fund. An equity oriented mutual fund is the one in which fund invests more than 65% in eligible equity shares.

In such case, capital gain tax is exempt being sale of equity mutual funds.

If the fund is not equity oriented fund, then the dividend reinvested shall be taxed in the year of investment and cost of acquisition of those units shall be the value of divend.

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Saurav Ray (Executive (Accounts)) (32 Points)
Replied 20 March 2014

Originally posted by : Sathya Sankeerth K N
	We can apply Sec 10(38) only if it is an Equity oriented mutual fund. An equity oriented mutual fund is the one in which fund invests more than 65% in eligible equity shares. In such case, capital gain tax is exempt being sale of equity mutual funds. If the fund is not equity oriented fund, then the dividend reinvested shall be taxed in the year of investment and cost of acquisition of those units shall be the value of divend.

Thanks to all.

Dear Mr. Sathya Sankeerth K N,

If dividend is reinvested on Daily Basis in a Mutual Fund Debt Scheme e.g. ICICI Prudential Flexible Income Plan - Daily Dividend or, SBI Magnum Insta Cash Fund, how to compute Capital Gains in such cases? Please kindly illustrate.

Thanks in advance.

Income Tax Wala: (Fin. Expert) (Chartered Accountants) (2015 Points)
Replied 20 March 2014

Dear Saurav,

in that case you have to prepare a excel sheet where you should enter your all daily basis investments and at the time of sale you check whether sale proceeds comes under STCG OR LTCG.