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Income tax on mutual fund dividend reinvestment type

Tax queries 3776 views 2 replies

Hemant kumar lodha

Depty Engg

37 Points Posted on 07 October 2010

Dear all

Please guide me regarding tax on Equity based Mutual Fund ( Dividend reinvestment Type ). How tax is calculated on it. i had invest an X amount in the year 2003. Now i want to redeem the amount. In between i had got dividends which were reinvested . a dividend was reinvested recently in may 2010.

How can i calculate the Tax on it.

Please guide me through

thanks in advance

Hemant

Replies (2)

Aditya Maheshwari

CA in Practice

35867 Points Posted on 07 October 2010

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.

Balaji

Knowledge Seeker

317 Points Posted on 11 October 2010

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).