Prudent Corporate Advisory Services Ltd.
 
Taxation

What is Dividend Distribution Tax?
Dividend Income from the Debt and Fund of Funds schemes only will attract the dividend distribution tax @ 12.5% for Individuals and 20.00% for the non-individuals. The dividends in the hands of the investor will be completely tax-free.
However, the Debt-oriented funds have to pay the DDT while Equity oriented funds exempt from it.

Capital Gains Tax
It is tax is paid by the investor to the tax authorities while they filling the income tax returns. More over the capital gains of the equity oriented funds are exempt from tax if your holding period exceeds one year. When you sell any asset you own (house, land, shares, mutual fund units, gold, debentures, bonds), and you make a profit on the sale, it is known as capital gain.

What is Securities Transaction Tax?
Equity oriented funds are subject to securities transactiontax at the rate of 0. 2 percent at the time of selling the funds units. This charge is deducted when you redeem your investments.

What are the tax benefits for investing in mutual fund units?
Dividend income from mutual fund units will be exempt from income tax with effect from July 1, 1999. Further, investors can get rebate from tax under section 80 (C)  of Income Tax Act, 1961 by investing in Equity Linked Saving Schemes of mutual funds.

Do I have to pay any tax on equity funds?
These are funds that invest in shares of companies (diversified equity funds and sector funds). They also include balanced funds, which have more than 65% of their total investments in equity.
Dividend income from an equity-oriented fund is tax-free.

If I sell my equity funds units before I complete a year do I have to pay any tax?
If you sell the units within a year of buying, it will attract a short-term capital gains tax of 10%.

What if I sell my equity funds units after a year then is there any tax that I have to pay
If you sell the units after a year, no long-term capital gains tax.

What tax has to be paid when dividend is declared by debt funds?
While dividend income is tax-free in the hands of the investors, it attracts a dividend distribution tax of 12.5% (plus surcharge and cess) paid by the mutual fund, has to be is borne by investors.

What if I sell my debt fund units after completing one year?
If you sell the units after a year, you will have to pay a long-term capital gains tax of either 10% without indexation, or 20% with indexation, whichever is lower. Indexation is used to calculate tax when inflation is taken into account. This is good because it reduces the amount of capital gain and the amount you end up paying as tax.

What if I sell my debt fund units before a year?
If you sell the units within a year, the short-term capital gain will be clubbed with the income of the individual investor, to be taxed as per the slab system.