sir please go through the following to help me(an old man of 70 years) .assuming a gain of rs 80000 after one year against an investment of rs ten lakhs ie rs 1000000 in a non equity mf what will be the tax implications in the gain of rs 80000 in mf. consideration of only one year is given ,as my son will take possession of a flat after one year when the money will be required. one reputed tax consultant in a column has opined as follows let's say you invest rs 10 lakh in a mutual fund. a year later, the value of the investment has increased to rs 10.8 lakh. now, you want to withdraw the rs 80,000 you have gained. note that out of the investment you hold, 7.4% is the gain (rs 80000 is 7.4% of a total value rs 1080000)and the remaining 92.6% is the principal that you had invested. here's the key idea: when you withdraw any money, the withdrawal shall be deemed to consist of the gains and the principal in this same proportion, for tax purposes. therefore, of that rs 80,000, only rs 5,926(7.4% of rs 80000) will be considered gains and will therefore be added to your taxable income. this makes an enormous difference. in an equivalent fd, you would pay rs 24,720 as tax in the highest slab. in the mutual fund, you would pay rs 1,831 as tax. but as per amfi india website vide www.amfiindia.com/investor-corner/knowledge-center/tax-corner.html subject-incidence of tax on mutual fund investors (i) capital gain tax 1) equity-oriented funds have no tax on long-term capital gains; i.e., if you sell your fund after 12 months from the date you bought it, you don’t pay capital gains tax. on short-term holding, the capital gains tax is a flat 15 per cent, no matter which tax bracket you belong to.and mf schemes that invest at least 65% of its fund corpus into equity and equity related instruments are known as equity mutual funds. 2)for debt funds, short-term is a holding period of less than 36 months. long-term holding is a period more than 36 months. on short-term capital gains, you are taxed at your slab rate. that is, if you’re in the 20% tax bracket, you pay 20% of your capital gains as tax. if you’re in the 10% tax bracket, you pay 10% tax on your capital gain. on long-term capital gains, your tax is 20% of the gain with cost indexation benefits. indexation is the method by which your cost is adjusted for inflation. what this does is to effectively reduce your absolute gain, as your cost goes up and thus reduces your taxable profit. my point of discussion is for non equity funds at short term as per the tax consultant mentioned above the consideration value should be 7.4%of gain ie rs 80000=rs 5926 and at 30.9% tax slab it is rs 1831 only. but does the amfi india site clarify this point of consideration that for tax purposes when you withdraw money only 7.4% of 80000 should be considered as capital gain and not rs 80000 .as a whole important point actually is there any difference between total withdrawal of rs 1080000 and only interest earned part of rs 80000 a)in case of lump sum withdrawal of rs 1080000 the tax will be much higher (rs 24720 considering highest tax bracket of 30% for a capital gain of rs 80000) b)but if we withdraw only interest value of rs 80000,capital gain will be only 7.4%of rs 80000 ie only rs 5926 please post your answer with due consideration of points (a) and (b) above with thanks.
Hi
You have written a lot... What I got is you want to sell non equity mutual funds before 1 year. In that case, STCG shall be proportionate and not on complete 80000 i.e. 5926 and this will be taxed according to the slab rates.
For the remaining mutual funds you hold, the gain shall be taxed in future as long term capital gains @ 10%/20% without and with indexation respectively.
Hi,
Tax will always be levied on the withdrawal amount. If you withdraw only 80000, tax will be levied on 80000 less proportionate cost.
Please feel free to call revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Mr Dagar has replied.Tax will always be levied on the withdrawal amount(.NOT UNDERSTOOD BY ME) If you withdraw only 80000, tax will be levied on 80000 less proportionate cost. I want to know the Tax Amount in both cases a)If I withdraw only Rs 80000 and b)If I withdraw the full amount of Rs 1080000 Please help with your answers
Actually the question has arisen due to the fact that an article has been published in Times of India,Hyderabad edition dated 09/10/2017 in Personal Finance page written by Mr Dhirendra Kumar,CEO,Value Research(www.valueresearchonline.com).Excerpts from the article is quoted below.I am a layman in this line,a Retired Chief Engineer.Please see the details.I am only seeking clarification from Experts.If the tax to be paid is only Rs 1831(when capital gain is Rs 5936) in stead of Rs 24720(when Capital Gain is Rs 80000) it will be a eye reckoner to Tax Payers like me IMPORTANT I am referring to an article published by Mr Kumar in TOI ,Hyderabad edition dated 09/10/2017 Title- Mutual funds have multiple tax advantages over bank fixed deposits Excerpts from His Article Let's say you invest Rs 10 lakh in a mutual fund. A year later, the value of the investment has increased to Rs 10.8 lakh. Now, you want to withdraw the Rs 80,000 you have gained. Note that out of the investment you hold, 7.4% is the gain and the remaining 92.6% is the principal that you had invested. Here's the key idea: when you withdraw any money, the withdrawal shall be deemed to consist of the gains and the principal in this same proportion, for tax purposes. Therefore, of that Rs 80,000, only Rs 5,926 will be considered gains and will therefore be added to your taxable income. This makes an enormous difference. In an equivalent FD, you would pay Rs 24,720 as tax in the highest slab. In the mutual fund, you would pay Rs 1,831 as tax. AS PER Mr Kumar the consideration VALUE SHOULD BE 7.4%OF GAIN ie Rs 80000=Rs 5926 AND AT 30.9% TAX SLAB IT IS Rs 1831 ONLY.7.4% figure comes ,as Rs 80000 is 7.4% of a total of Rs 1080000. I am trying to CLARIFY THE POINT as above from Experts,so that as a Income Tax Payers I can take it up with IT Authorities. With thanks.
Actually the question has arisen due to the fact that an article has been published in Times of India,Hyderabad edition dated 09/10/2017 in Personal Finance page written by Mr Dhirendra Kumar,CEO,Value Research(www.valueresearchonline.com).Excerpts from the article is quoted below.I am a layman in this line,a Retired Chief Engineer.Please see the details.I am only seeking clarification from Experts.If the tax to be paid is only Rs 1831(when capital gain is Rs 5936) in stead of Rs 24720(when Capital Gain is Rs 80000) it will be a eye reckoner to Tax Payers like me IMPORTANT I am referring to an article published by Mr Kumar in TOI ,Hyderabad edition dated 09/10/2017 Title- Mutual funds have multiple tax advantages over bank fixed deposits Excerpts from His Article Let's say you invest Rs 10 lakh in a mutual fund. A year later, the value of the investment has increased to Rs 10.8 lakh. Now, you want to withdraw the Rs 80,000 you have gained. Note that out of the investment you hold, 7.4% is the gain and the remaining 92.6% is the principal that you had invested. Here's the key idea: when you withdraw any money, the withdrawal shall be deemed to consist of the gains and the principal in this same proportion, for tax purposes. Therefore, of that Rs 80,000, only Rs 5,926 will be considered gains and will therefore be added to your taxable income. This makes an enormous difference. In an equivalent FD, you would pay Rs 24,720 as tax in the highest slab. In the mutual fund, you would pay Rs 1,831 as tax. AS PER Mr Kumar the consideration VALUE SHOULD BE 7.4%OF GAIN ie Rs 80000=Rs 5926 AND AT 30.9% TAX SLAB IT IS Rs 1831 ONLY.7.4% figure comes ,as Rs 80000 is 7.4% of a total of Rs 1080000. I am trying to CLARIFY THE POINT as above from Experts,so that as a Income Tax Payers I can take it up with IT Authorities. With thanks.
Ok...Let me again clarify that if you have invested 10 lacs in equity mutual funds for less than one year and got 80000 profit and withdraw that 80k profit, then 8% of 80000 (6400) will be you gain.
You have to pay 15% tax on 6400 i.e. 960.
However, comparing this with FD is not a right way to look at it.
Please feel free to call/ revert in case you need more.
Atten -Mr Dugar If I have correctly learnt from you,if I withdraw Rs 80000(partial),Capital Gain will be less and tax will be less(Proportionate).But if I withdraw Rs 1080000 in totality tax will be full (as per the article it is 24720). Please give one line reply o.k.,if I am correct this time With thanks
No.
If you withdraw full amount tax will be 12,000.
Please feel free to call revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
Appears that the questions have already been answered by Mr. Dugar and other experts.
