DIVIDEND ON MUTUAL FUNDS TAXABLE OR EXEMPT. ANY AMOUNT LIMIT. IF TAXABLE, AT WHAT RATE FOR F.Y. 2018-19
debora M (BUSINESS DEVELOPMENT MANAGER) 10 July 2019
1) If 65% or more of the corpus of a mutual fund scheme is invested in equities, it is treated as equity scheme for the purpose of taxation
2) If you redeem your equity fund investments within a year, returns or gains are treated as short-term capital gains and taxed at 15%.
5. Dividends from equity mutual funds are tax-free in the hands of investors. But dividends from equity mutual funds are paid after deducting a dividend distribution tax (DDT) of 11.648% (including surcharge and cess), which reduces the in-hand return for investors.
6) Arbitrage mutual funds, which invest in arbitrage opportunities in cash and derivative segments of the equity markets, are treated as equity funds for the purpose of taxation.
8) In case of debt funds or non-equity funds if you sell your investments after less than three years of holding, gains or returns are treated as short-term capital gains for taxation purpose. Short-term capital gains are added to your income and taxed according to your applicable income tax slab.
9) If the holding period of debt fund investments is more than three years, returns are considered as long-term capital gains for taxation purpose and taxed at 20% with indexation benefit. Indexation means adjustment of gains after taking inflation into consideration. So if you have invested in a debt fund for over three years, you will be paying taxes only on the returns over and above the inflation-adjusted initial investment.
10) Dividends from debt mutual funds are tax free in the hands of the investor but dividend payouts from debt mutual funds are subjected to a dividend distribution tax of 29.12% (including cess and surcharge). This effectively reduces the in-hand return for investors.
Suresh Thiyagarajan (Student) 10 July 2019
1. According to sec 10(35), dividend received from an MF will be exempted from payment of tax.
2. There is no limit as such specified u/s 10(35) unlike in sec 10(34) where the limit is Rs. 10 lakhs. But to contrary, there has not been any mention of MF dividend from the exclusion sec 115BBDA. But from a plain reading of sec 10(34) and sec 10(35), sec 115BBDA will only apply to dividend referred to in sec 10(34).
3. Hence whatever the amount received as dividend from MF will not be subject to tax and there is no limit with respect to the same.
Please correct me if the above solution has an alternative view.