Any income arising from mutual fund is exempt from tax as per section 10(35) of Income Tax Act'1961. However, Capital gain arising transfer of mutual fund:
In case of long term capital gain (held more than 12 months) shall be exempt from tax as per section 10(38) of Income Tax Act,1961
In case of short term capital gain (other than long term) shall be taxable at normal rates.
In case of dividend re-investment from the date of re-investment to date of sale , if it short term shall be liable to tax otherwise exempted.