Mutual Funds

Tax changes affecting mutual funds

| Updated on March 10, 2018

Securities transaction tax for mutual funds has come down.

The following changes in tax rates applicable to mutual funds and its investors were incorporated in the Budget for 2013-14 passed by Parliament. These are effective from June 1, 2013. Here are some investor queries on the changes and our response.

What are the changes regarding Dividend Distribution Tax (DDT)?

There is a change in the tax rate on income distributed to investors as dividend (Dividend Distribution Tax, or DDT). Dividend Distribution Tax is deducted and paid by mutual funds and dividend rates are declared net of such taxes.

Such dividends are not taxable at the hands of investors.

Till now, for money market schemes or liquid schemes in mutual funds, the tax rate on distribution of dividend income to an individual or an HUF was 25 per cent.

With respect to other debt funds, the tax rate was 12.5 per cent while it was nil for equity-oriented funds.

According to the Finance Bill 2013, the DDT applicable for debt funds has increased from 12.5 per cent to 25 per cent for individuals and HUFs. DDT applicable to any person other than an individual or HUF i.e. a firm, or a company, continues to be 30 per cent.

This new rate is applicable from June 1, 2013 on dividends declared on or after June 1, 2013.

However, investors may note that such dividends received by them would not be taxed in their hands.

Is there any change in the rates of Securities Transaction Tax (STT)?

Yes. There is a reduction in STT on mutual fund transactions.

Securities Transaction Tax has been reduced on equity schemes and exchange traded funds to 0.001 per cent for the financial year 2013-14 from June 1, 2013.

STT levied on the redemption value was at 0.25 per cent for the previous financial year i.e. for transactions up to May 31, 2013.

What are the changes regarding TDS?

For mutual funds, tax is deducted at source (TDS) while processing redemptions and switchouts for Non-Resident Indians (NRIs) only. There is no change in the existing TDS rates.

However, a new surcharge of 10 per cent has been introduced if the income exceeds Rs 1 crore for NRI investors.

(Contributed by Investor Education Team of CAMS. The views expressed herein are general practices. This is for your knowledge and should not be considered as the basis for determining your tax liability. You are advised to consult your financial / tax advisor to verify the same.)

Published on June 15, 2013

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor