I have invested in one of Fidelity Mutual Fund’s scheme. Since the company is selling its India business, I can exit the investment. If I do so, how will my tax liability work out?
Sale of mutual fund (MF) units has capital gains tax implications. If the units of MF have been held by you for up to 12 months, then the sale of such units would be liable to short-term capital gains tax. If the units of MF have been held for more than 12 months then such sale would be liable for long-term capital gains tax. The tax implications differ depending on whether or not it is an equity-oriented fund. An equity-oriented fund is one where the investible funds are invested in equity shares to the extent of more than 65% of the total proceeds of such fund and such fund is set up under a scheme of mutual fund specified under section 10(23D) of the Income-Tax Act, 1961 (the Act). If the units of MF are units of equity-oriented fund and Securities Transaction Tax (STT) has been paid thereon, then such long-term capital gains would be exempt from tax under section 10(38) of the Act. Otherwise, such long-term capital gains would be chargeable to tax at a flat rate of 20.6 per cent with indexation or 10.3 per cent without indexation in case of a resident individual. If the units of MF are units of an equity-oriented fund and STT has been paid thereon, then such short-term capital gains would be chargeable to tax at the rate of 15.45 per cent. Otherwise, such short-term capital gains would be chargeable to tax at the respective slab rate of tax. Chapter VIA deduction will not be available if the long-term/short-term capital gain is subject to tax at flat rates. In case of resident individuals where the total taxable income as reduced by capital gain is below the basic exemption limit, then such capital gain will be reduced to the extent of shortfall and the balance capital gain will be subject to tax at the flat rate specified above.
I am a tax paying senior citizen. My sources of income are pension, interest income, dividends and long-term capital gains. I plan to book short-term capital gains on equity shares held for six months. Do I have to pay a flat 15 per cent tax as or am I entitled to some relief against the relevant tax slab? Please clarify if any deduction is allowed on short-term gains vis-a-vis one’s income tax bracket.
It is assumed you are a tax-paying resident in India and the transaction of sale will be subject to STT. If your total income, as reduced by the capital gain, is below the threshold limit which is not chargeable to tax, then the amount of the short-term capital gain which is below the threshold limit would not be chargeable to tax. The tax on the balance short-term capital gains shall be chargeable to tax at the rate of 15.45 per cent. No deduction under Chapter VIA is allowed against such capital gain.
The writer is a tax partner at Deloitte, Haskins & Sells. The views expressed are his own