Income tax on mutual fund dividend reinvestment type

Dividend amount reinvested is exempt u/s 10(34) and the same will be added to cost of acquisition.

When u sale the mutual fund the same will be allowable as a deduction from sale price for the purpose of computing capital gains.

Dear Hemant,

1) Dividends recd by you would be tax-free.

2) Since you have chosen the "Dividend re-investment" Option, any dividend which is re-invested would be considered as a fresh purchase of the units of the scheme and hence you would have to sell such units after holding the same for more than 1 year if you want to avail of "No tax" benefit.Thus the dividend which was re-invested in May 2010 would suffer short-term Capital Gains tax if you redeem the same now.

Mr.Maheshwari,kindly confirm that my understanding is correct (I regularly follow your posts and truly appreciate your inputs).