Know your Taxes
Tax Reckoner specific to mutual funds 2020-21
(The rates are applicable for the FY 2020-21 as per Finance Act, 2020)
Income-tax implications on income in respect of units of Mutual Fund
| Type of Investor | Withholding tax rate |
|---|---|
| Resident | 10%* |
| NRI | 20%** |
The Finance Bill, 2020 proposes to abolish income distribution tax and instead proposes to tax income from mutual fund units in the hands of the unit holders.* Tax not deductible if dividend income in respect of units of a mutual fund is below Rs. 5,000 in a financial year.** The base tax is to be further increased by surcharge at the rate of
- 37% on base tax where specified income exceeds Rs. 5 crore;
- 25% where specified income exceeds Rs. 2 crore but does not exceed Rs. 5 crore;
- 15% where total income exceeds Rs. 1 crore but does not exceed Rs. 2 crore; and
- 10% where total income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore
Specified income – Total income excluding income under the provisions of section 111A and 112A of the Income-tax Act,1961 (‘the Act’) Further, “Health and Education Cess” is to be levied at 4% on aggregate of base tax and surcharge.
Capital Gains Taxation
Equity Oriented Schemes
- Long Term Capital Gains (units held for more than 12 months)
- Short Term Capital Gains (units held for 12 months or less)
Other Than Equity Oriented Schemes
- Long Term Capital Gains (units held for more than 36 months)
- Short Term Capital Gains (units held for 36 months or less)
Tax Deducted at Source (Applicable to NRI Investors) #
| Short Term Capital Gains$ | Long Term Capital Gains$ | |
|---|---|---|
| Equity oriented schemes | 15% | 10%* |
| Other than equity oriented schemes | 30%^ | 10%** (for unlisted) & 20%& (for listed) |
* Income-tax at the rate of 10% (without indexation benefit and foreign exchange fluctuation) to be levied on long-term capital gains exceeding Rs. 1 lakh provided transfer of such units is subject to STT.
$ Surcharge to be levied at:
- 37% on base tax where specified income exceeds Rs. 5 crore;
- 25% where specified income exceeds Rs. 2 crore but does not exceed Rs. 5 crore;
- 15% where total income exceeds Rs. 1 crore but does not exceed Rs. 2 crore; and
- 10% where total income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore.
Specified income – Total income excluding income under the provisions of section 111A and 112A of the Act.Further, Health and Education Cess to be levied at the rate of 4% on aggregate of base tax and surcharge.
@ Surcharge at 7% on base tax is applicable where total income of domestic corporate unit holders exceeds Rs 1 crore but does not exceed 10 crores and at 12% where total income exceeds 10 crores. However, surcharge at flat rate of 10 percent to be levied on base tax for the companies opting for lower rate of tax of 22%/15%. Further, “Health and Education Cess” to be levied at the rate of 4% on aggregate of base tax and surcharge.
# Short term/ long term capital gain tax (along with applicable Surcharge and Health and Education Cess) will be deducted at the time of redemption of units in case of NRI investors. However, the Finance Bill, 2020 proposes withholding tax of 20% on any income in respect of units of mutual fund in case of non-residents as per section 196A of the Act. Hence, based on language provided in said section, it seems that apart from any income distributed to NRI, withholding tax at 20% may be applicable on capital gains notwithstanding that such capital gains are taxable at a rate lower than 20%.
! The Finance Bill, 2020 proposes to insert new section (i.e. section 194K) which provides for withholding tax of 10% on any income in respect of units of mutual fund in case of residents.However, as per press release issued on 4 February 2020, it has been clarified that withholding tax of 10% is only on dividend income and not on capital gains.
& After providing indexation.
** Without indexation.
^ Assuming the investor falls into highest tax bracket.
^^ If total turnover or gross receipts in the financial year 2018-19 does not exceed Rs. 400 crores.
^^^ This lower rate is optional and subject to fulfillment of certain conditions as provided in section 115BAA.
^^^^ This lower rate is optional for companies engaged in manufacturing business (set-up & registered on or after 1 October 2019) subject to fulfillment of certain conditions as provided in section 115BAB.
Further, the domestic companies are subject to minimum alternate tax (except for those who opt for lower rate of tax of 22%/15%) not specified in above tax rates.Transfer of units upon consolidation of mutual fund schemes of two or more schemes of equity oriented fund or two or more schemes of a fund other than equity oriented fund in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains.Transfer of units upon consolidation of plans within mutual fund schemes in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains. Relaxation to non-residents from deduction of tax at higher rate in the absence of PAN subject to them providing specified information and documents.
Bonus Stripping: The loss due to sale of original units in the schemes, where bonus units are issued, will not be available for set off; if original units are: (A) bought within three months prior to the record date fixed for allotment of bonus units; and (B) sold within nine months after the record date fixed for allotment of bonus units. However, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such unsold bonus units.
Income Tax Rates
Option-A
For Individuals, Hindu Undivided Family, Association of Persons, Body of Individuals and Artificial juridical persons
| Total Income | Total Income |
|---|---|
| Up to Rs. 2,50,000(a) (b) | NIL |
| Rs. 2,50,001 to Rs. 5,00,000(d) (e) | 5% |
| Rs. 5,00,001 to Rs. 10,00,000(d) | 15% |
| Rs. 10,00,001 and above(c) (d) | 30% |
- (a) In case of a resident individual of the age of 60 years or above but below 80 years, the basic exemption limit is Rs. 300,000.
- (b) In case of a resident individual of age of 80 years or above, the basic exemption limit is Rs 500,000.
- (c) Rate of surcharge
- 37% on base tax where specified income exceeds Rs. 5 crore;
- 25% where specified income exceeds Rs. 2 crore but does not exceed Rs. 5 crore
- 15% where total income exceeds Rs. 1 crore but does not exceed Rs. 2 crore; and
- 10% where total income exceeds Rs 50 lakhs but does not exceed Rs. 1 crore.
Specified income – Total income excluding income under the provisions of section 111A and 112A of the Act. Marginal relief for such person is available. (d) Health and Education cess @ 4% on aggregate of base tax and surcharge.(e) Individuals having total income not exceeding Rs. 500,000 can avail rebate of lower of actual tax liability or Rs. 12,
Option-B
The Finance Bill, 2020 has proposed New Personal Tax Regime:
| Total Income | Tax Rates |
|---|---|
| Up to 2,50,000 | NIL |
| From 2,50,001 to 5,00,000 | 5% |
| From 5,00,001 to 7,50,000 | 10% |
| From 7,50,001 to 10,00,000 | 15% |
| From 10,00,001 to 12,50,000 | 20% |
| From 12,50,001 to 15,00,000 | 25% |
| From 15,00,001 and above | 30% |
For adopting Option B, most of the deductions/exemptions such as section 80C, 80D, etc. are to be foregone. The aforesaid regime is optional. Accordingly, Individuals and HUFs have the option to be taxed under either of the options. Option B once exercised can be changed in subsequent years (not applicable for business income).
Securities Transaction Tax (STT)
STT is levied on the value of taxable securities transactions as under:
| Transaction | Rates | Payable by |
|---|---|---|
| Purchase/ Sale of equity shares (delivery based) | 0.1% | Purchaser/Seller |
| Purchase of units of equity oriented mutual fund | Purchase of units of equity oriented mutual fund | Purchaser |
| Sale of units of equity oriented mutual fund (delivery based) | 0.001% | Seller |
| Sale of equity shares, units of business trust, units of equity oriented mutual fund (non-delivery based) | 0.025% | Seller |
| Sale of an option in securities | 0.05% | Seller |
| Sale of an option in securities, where option is exercised | 0.125% | Purchaser |
| Sale of a futures in securities | 0.01% | Seller |
| Sale of units of an equity oriented fund to the Mutual Fund | 0.001% | Seller |
| Sale of unlisted equity shares and units of business trust under an initial offer | 0.2% | Seller |
DISCLAIMER:
The information given here for Financial Year 2020-21 is for general purposes only and is not an offer to sell or a solicitation to buy/sell any units of schemes of Shriram Mutual Fund. The information set out is neither a complete disclosure of every material fact of the Income-tax Act, 1961 nor does it constitute tax or legal advice. In view of the individual nature of the tax consequences, each investor is advised to consult his/her own professional tax advisor. Neither Shriram Mutual Fund nor Shriram Asset Management Company Limited nor any person connected with it accepts any liability arising from the use of this information. The investors should before investing in the Scheme(s) of Shriram Mutual Fund make his/their own investigation and seek appropriate professional advice. AMC/MF/Trustees/Sponsors is/are not liable or responsible for any loss or shortfall resulting from the operations of the scheme.
