Step 1: Search: Where to look for if you want to begin saving in mutual funds
Mutual funds are much like any other product, in that there are manufacturers who provide the product and there are dealers who sell them. Large banks to organized brokerage houses to Individual Financial agents get empanelled with Mutual Funds to provide advice and assistance to customers who want to buy units. Mutual funds units can now also be bought over the Internet.
Contacting an Investment advisor in a bank or a brokerage house or an Independent Financial Advisor is the first step to gathering information.
Step 2: Evaluation: choosing the right mutual fund for you
Each Mutual fund offers a variety of schemes to suit differing needs of investors. The Bank / Brokerage house / Individual Financial Advisor helps you make the choice based on your needs
As an investor one may
a) want to invest for the short term or long term want to invest
b) want regular income or growth
c) want to target lower risk or higher returns
d) be convinced of a particular sector and want to invest in it
Remember, just like a salesman in a gift shop, your investment advisor can help you the most if he knows what you are looking for.
Step 3: Purchase
After you have decided to save, you may have to decide among the various investment and withdrawal options that any fund offers to its investors. Most of these schemes also offer various options to customize your operation of the fund to your needs:
Systematic Investment Plan (SIP)
Allows you to save a part of your income regularly. Also used to reduce risk when investing in schemes targeting aggressive growth.
Systematic Withdrawal Plan (SWP)
Allows you to withdraw a part of your investment regularly. Used when you want to withdraw your investment for a specific regular payment, like insurance premium payments of monthly/quarterly frequency
Direct debit
Saves the hassle of writing a cheque when making an investment. Your account is debited automatically for the amount invested.
Direct credit
The reverse of Direct Debit. It saves the hassle of enchasing a cheque when withdrawing an investment. Your account is credited automatically with the amount withdrawn.
Dividend plan
Allows you to get Tax-free dividends from your investment. (As per current tax laws).
Growth plan
Allows the income generated from investment to be ploughed back into the scheme. Used by investor targeting growth in their investment.
After deciding the choice of mutual fund, investment and withdrawal, you are ready to begin your savings. You need to now fill up an application form and attach a cheque of the value of your investment or mention your account number to have it automatically debited from your account.
Step 4: Post Purchase Monitoring
Once you have invested in an ongoing fund, expect a period of two to three days before you receive an account statement on the address mentioned by you in your application form.
The Account Statement
Your account statement indicates your current holding in the scheme that you have invested. Please ensure that all your details have been correctly captured in account statement. Please point out any discrepancies to your nearest CAMS investor Service Centre or the Mutual Fund office. You can request an account statement any time by calling up your nearest CAMS / Mutual fund offices usually mentioned on the back of the account statement.
The transaction slip at the end of the account statement can be used for additional purchases, redemptions or to intimate the mutual fund on any change in bank mandates/address.
The NAVs of all the open-ended schemes are published at the fund's website, financial newspapers and AMFI (Association of Mutual Funds) web-site www.amfiindia.com.
Step 5: Exit
While you should periodically monitor the performance of your investments, we recommend you do not get swayed by short term considerations in deciding your exit. If you have invested in a long term fund, you can spare yourself undue worries by not monitoring the NAV every day or week. Checking the performance once in a while along with your advisor should be fine. Most mutual funds will provide you with a toll free number that works from 9 am to 5 am and a website. For specific assistance you can also use your financial advisors help.
Redemption/ Withdrawal
Just submit your completed transaction within the transacted time for the scheme that you are invested in and deposit the same at the nearest CAMS Investor Service Centre or the office of the fund. You can either get a direct credit to your bank account or you can generally collect the cheque at the CAMS/KARVY Investor Service Centre/ AMC offices. If you fail to do so then the cheque is couriered to the address mentioned in your account statement. Most funds take 1-3 days to credit your account with your redemption proceeds.
In case an exit load is applicable to your withdrawal and you have redeemed a fixed amount, an additional number of units equivalent to the exit load amount will be liquidated from your investment. You can check this amount with the mentioned exit load when you get the account statement using a simple calculator.
Saturday, April 16, 2011
Wednesday, April 13, 2011
Tax Implications of Mutual Funds
Tax issues concerning Mutual fund Investors.
I. Equity Oriented Funds - Tax Treatment of Investments
A. Tax on income in respect of units
As per the section 10(35) of the Act, income received by investors under the schemes of any Mutual Fund is exempt from income tax in the hands of the recipient unit holders.
B. Dividend Distribution Tax:
By virtue of proviso to section 115 (R) (2) of the Act, equity oriented schemes are exempt from income distribution tax. As per section 115T of the Act, equity oriented fund means such fund where the investible funds are invested by way of equity shares in domestic companies (as defined under the Act) to the extent of more than sixty five percent of the total proceeds of such fund.
C. TDS on income of units : As per the provisions of section 194K and section 196A of the Act, where any income is credited or paid on or after 1st April 2003 by a Mutual Fund, no tax is required to be deducted at source.
D. Tax on capital gains
i) Long Term Capital Gains
As per section 10(38) of the Act, any income arising from the transfer of a long term capital asset being a unit of an Equity Oriented Scheme chargeable to securities transaction tax (STT) shall not form part of total income, therefore, exempt from Income Tax. As per section 10(38) of the Act, equity oriented fund means a fund where the investible funds are invested by way of equity share in domestic companies to the extent of more than sixty five percent of the total proceeds of such fund and which has been set up under a scheme of a mutual fund specified under section 10(23D) of the Income Tax Act, 1961.
ii) Short term capital gains
Units held for not more than twelve month's preceding the date of their transfer are short term capital assets. Capital gains arising from the transfer of short term capital assets being unit of an equity oriented scheme which is chargeable to STT is liable to income tax @ 15% under section 111 A and section 115 AD of the Act. The said tax rate is increased by surcharge, if applicable.
iii) Securities Transaction Tax (STT)
As per Chapter VII of Finance (No. 2) Act, 2004 relating to Securities Transaction Tax (STT), with effect from June 01, 2006, the STT is payable by the seller at the rate of 0.25% on the sale of unit of an equity oriented scheme to the Mutual Fund. The STT is collected by the Mutual Fund at source.
With effect from 01st April 2008:
1.the deduction under section 88E of the Act has been discontinued, and
2.the amount of STT paid by the assessee during the year in respect of taxable securities transactions entered into in the course of business will be allowed as deduction under section 36 of the Act subject to the condition that such income from taxable securities transactions is included in the income computed under the head “Profits and Gains of business or profession”.
E. TDS on Capital Gains
(i) Resident Investors
As per Central Board of Direct Taxes (‘CBDT’) circular No.715 dated 8th August 1995, in case of resident unitholders no tax is required to be deducted from capital gains arising at the time of redemption of the units.
(ii) For Non Resident Investors
Long term capital gains
No tax is deductible from the proceeds payable to non resident investors from long term capital gains arising out of redemption of units of an equity oriented fund.
Short term capital gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 1 (b) (i) (C)}, the Mutual Fund is liable to deduct tax @ 15% on short term capital gains. The TDS is to be increased by applicable surcharge.
(iii) In the case of a Company
Other than a Domestic Company (foreign company, as defined under the Act):
Long term capital gains
No tax is to be deducted from the proceeds payable to non resident investors from long term capital gains arising out of redemption of units of an equity oriented fund.
Short term capital gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 2 (b) (vii)}, the Mutual Fund is liable to deduct tax @ 15% on short term capital gains. The TDS will have to be increased by applicable surcharge.
(iv) Foreign Institutional Investors (FIIs) (as defined under the Act): In the case of Foreign Institutional Investors (FIIs), no tax would be deductible at source from the capital gains arising on redemption of units in view of section 196 D (2) of the Act.
Education Cess and Surcharge:
The tax / TDS (except STT) is to increased by applicable surcharge. Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge.
Retriement Benefit Plan, Unit Linked Insurance Plan, Equity Linked Savings Scheme : Tax benefits under section 80 C
Contribution made by individuals and HUFs in the above Plans / Scheme will be eligible for deduction of the whole of the amount paid or deposited subject to a maximum of Rs.1,00,000/- under Section 80 C of Income Tax Act, 1961 as provided therein.
II. Other than Equity Oriented Funds - Tax Treatment of Investments
Tax issues concerning Unit holders
A. Tax on income in respect of units
As per section 10(35) of the Act, income received by investors under the schemes of Mutual Fund is exempt from income tax in the hands of the recipient unitholders.
B. Dividend Distribution Tax:
i) For Money Market and Liquid Schemes:
As per section 115R of the Act, the dividend distribution tax for Money Market and Liquid Fund is 25% plus surcharge.
ii) For Schemes other than Money Market and Liquid Schemes:
As per section 115R of the Act, income distribution tax shall be levied at 12.5% plus surcharge for distribution made to individuals or HUF and for any other person at 20% plus surcharge.
C. TDS on income of units
As per the provisions of section 194K and section 196A of the Act, where any income is credited or paid on or after 1st April 2003 by a Mutual Fund, no tax is required to be deducted at source.
D. Tax on cgains apital
(i) Long Term Capital Gains
Resident Unitholders
Any long term capital gain arising on redemption of units by residents is subject to treatment indicated under Section 48 and 112 of the Act. Long term capital gains in respect of units held for more than 12 months is chargeable to tax @ 20% after factoring the cost inflation index or tax at the rate of 10% without indexation, whichever is lower. The said tax rate is to be increased by surcharge, if applicable.
Non Resident Unitholders
Under section 115 E of the Act, in case of income of non resident Indians by way of long term capital gains, in respect of units is chargeable at the rate of 20% plus surcharge, if applicable. Chapter XIIA exclusively deals with taxation related to Non-resident Indians. Under section 115 D of the Income Tax Act, a non-resident Indian cannot avail the benefit of indexation.
In the alternative the capital gains tax may be computed by the non residents under section 112, if it is more beneficial to them. Under Section 112 of the Act, long term capital gains are taxed at the rate of tax @ 20% plus surcharge. The benefit of indexation is also available to the non residents under section 48 of the Income Tax Act, 1961. Gains on short term capital asset are taxed as regular income.
FIIs
As per section 115 AD of the Act, long term capital gains on sale of units are to be taxed @ 10% and short term gains are to be taxed@ 30%. Such gains in either case would be calculated without indexation benefit as the first and second provisos to section 48 do not apply to FIIs by virtue of section 115 AD (3) of the Act. The applicable tax rates is to be increased by applicable surcharge.
ii) Short Term Capital Gains
Units held for not more than twelve months proceeding the date of their transfer are short term capital assets. Capital gains arising from the transfer of short term capital assets will be subject to tax at the normal rates of tax applicable to such assessee.
E. TDS on capital gains
i) Resident Investors
As per Central Board of Direct Taxes (‘CBDT’) circular No.715 dated 8th August 1995, in case of resident unitholders no tax is required to be deducted from capital gains arising at the time of redemption of the units.
ii) for Non Resident Investors
Long Term Capital Gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 1 (b) (i) (D)}, the Mutual Fund is liable to deduct tax @ 20% on long term capital gains.
Short Term Capital Gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 1 (b) (i) (K)}, the Mutual Fund is liable to deduct tax @ 30% on short term capital gains.
Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge mentioned above.
iii) Other than a Domestic Company:
Long Term Capital Gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 2 (b) (viii)}, the Mutual Fund is liable to deduct tax @ 20% on long term capital gains.
Short Term Capital Gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 2 (b) (ix)}, the Mutual Fund is liable to deduct tax @ 40% on short term capital gains.
(iv) FIIs:
In the case of Foreign Institutional Investors (FIIs), no tax would be deductible at source from the capital gains arising on redemption of units in view of section 196 D (2) of the Act.
Education Cess and Surcharge:
The TDS is to increased by applicable surcharge. Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge.
Certain common provisions for equity oriented funds and other than equity oreinted funds 1. Double Taxation Avoidance Agreement (DTAA)
As per CBDT Circular No. 728 dated October 30, 1995, in the case of remittance to a country with which a DTAA is in force, the tax is to be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA, whichever is more beneficial to the assessee. For the unitholder to obtain the benefit of a lower rate available under a DTAA, the unit holder is required to provide the Mutual Fund with a certificate obtained from his Assessing Officer stating his eligibility for the lower rate.
2. Short Term Capital Losses
As per section 94(7), if any person acquires units within a period of 3 months prior to the record date fixed for declaration of dividend or distribution of income and sells or transfers the same within a period of 9 months from such record date, losses arising from such sale to the extent of income received or receivable on such units, which are exempt under the Act, will be ignored for the purpose of computing his income chargeable to tax.
Further, as per Section 94(8), where additional units have been issued to any person without any payment, on the basis of existing units held by such person then the loss on sale of original units shall be ignored for the purpose of computing income chargeable to tax, if the original units were acquired within 3 months prior to the record date fixed for receipt of additional units and sold within 9 months from such record date. However, the loss so ignored shall be considered as cost of acquisition of such additional units held on the date of sale by such person.
3. Investment by Trusts:
Investment in units of the Mutual Fund rank as eligible form of investment under section 11(5) and section 13 of the Act read with Rule 17C(i) of the Income Tax Rules, 1962 for Public Religious & Charitable Trust.
4. Higher TDS if PAN not available:
With effect from 01st April 2010, a new provision (section 206AA) has been inserted in the Act. As per this provision, any person entitled to receive any sum or income or amount, on which tax is deductible shall furnish his Permanent Account Number (PAN) to the person responsible for deducting such tax, failing which tax shall be deducted @ 20% or the prescribed rate, whichever is higher. Applicable surcharge, education cess and secondary & higher education cess will also be deducted on such amount of TDS.
4. Wealth Tax
Units of Mutual Fund are not covered under the definition of ‘assets’ under section 2(ea) of the Wealth Tax Act, 1957, and hence value of investment in units is completely exempt from Wealth Tax.
5. Gift Tax
The Gift Tax Act, 1958 has abolished the levy of Gift Tax in respect of gifts made on or after 1st October 1998. Thus, gifts of units on or after 1st October, 1998 are exempt from Gift Tax. Further, subject to certain exceptions, gifts from persons exceeding Rs.50,000/- are taxable as income in the hands of donee pursuant to section 2(24)(xiv) of the Act read with section 56(2)(vi) of the Act.
I. Equity Oriented Funds - Tax Treatment of Investments
A. Tax on income in respect of units
As per the section 10(35) of the Act, income received by investors under the schemes of any Mutual Fund is exempt from income tax in the hands of the recipient unit holders.
B. Dividend Distribution Tax:
By virtue of proviso to section 115 (R) (2) of the Act, equity oriented schemes are exempt from income distribution tax. As per section 115T of the Act, equity oriented fund means such fund where the investible funds are invested by way of equity shares in domestic companies (as defined under the Act) to the extent of more than sixty five percent of the total proceeds of such fund.
C. TDS on income of units : As per the provisions of section 194K and section 196A of the Act, where any income is credited or paid on or after 1st April 2003 by a Mutual Fund, no tax is required to be deducted at source.
D. Tax on capital gains
i) Long Term Capital Gains
As per section 10(38) of the Act, any income arising from the transfer of a long term capital asset being a unit of an Equity Oriented Scheme chargeable to securities transaction tax (STT) shall not form part of total income, therefore, exempt from Income Tax. As per section 10(38) of the Act, equity oriented fund means a fund where the investible funds are invested by way of equity share in domestic companies to the extent of more than sixty five percent of the total proceeds of such fund and which has been set up under a scheme of a mutual fund specified under section 10(23D) of the Income Tax Act, 1961.
ii) Short term capital gains
Units held for not more than twelve month's preceding the date of their transfer are short term capital assets. Capital gains arising from the transfer of short term capital assets being unit of an equity oriented scheme which is chargeable to STT is liable to income tax @ 15% under section 111 A and section 115 AD of the Act. The said tax rate is increased by surcharge, if applicable.
iii) Securities Transaction Tax (STT)
As per Chapter VII of Finance (No. 2) Act, 2004 relating to Securities Transaction Tax (STT), with effect from June 01, 2006, the STT is payable by the seller at the rate of 0.25% on the sale of unit of an equity oriented scheme to the Mutual Fund. The STT is collected by the Mutual Fund at source.
With effect from 01st April 2008:
1.the deduction under section 88E of the Act has been discontinued, and
2.the amount of STT paid by the assessee during the year in respect of taxable securities transactions entered into in the course of business will be allowed as deduction under section 36 of the Act subject to the condition that such income from taxable securities transactions is included in the income computed under the head “Profits and Gains of business or profession”.
E. TDS on Capital Gains
(i) Resident Investors
As per Central Board of Direct Taxes (‘CBDT’) circular No.715 dated 8th August 1995, in case of resident unitholders no tax is required to be deducted from capital gains arising at the time of redemption of the units.
(ii) For Non Resident Investors
Long term capital gains
No tax is deductible from the proceeds payable to non resident investors from long term capital gains arising out of redemption of units of an equity oriented fund.
Short term capital gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 1 (b) (i) (C)}, the Mutual Fund is liable to deduct tax @ 15% on short term capital gains. The TDS is to be increased by applicable surcharge.
(iii) In the case of a Company
Other than a Domestic Company (foreign company, as defined under the Act):
Long term capital gains
No tax is to be deducted from the proceeds payable to non resident investors from long term capital gains arising out of redemption of units of an equity oriented fund.
Short term capital gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 2 (b) (vii)}, the Mutual Fund is liable to deduct tax @ 15% on short term capital gains. The TDS will have to be increased by applicable surcharge.
(iv) Foreign Institutional Investors (FIIs) (as defined under the Act): In the case of Foreign Institutional Investors (FIIs), no tax would be deductible at source from the capital gains arising on redemption of units in view of section 196 D (2) of the Act.
Education Cess and Surcharge:
The tax / TDS (except STT) is to increased by applicable surcharge. Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge.
Retriement Benefit Plan, Unit Linked Insurance Plan, Equity Linked Savings Scheme : Tax benefits under section 80 C
Contribution made by individuals and HUFs in the above Plans / Scheme will be eligible for deduction of the whole of the amount paid or deposited subject to a maximum of Rs.1,00,000/- under Section 80 C of Income Tax Act, 1961 as provided therein.
II. Other than Equity Oriented Funds - Tax Treatment of Investments
Tax issues concerning Unit holders
A. Tax on income in respect of units
As per section 10(35) of the Act, income received by investors under the schemes of Mutual Fund is exempt from income tax in the hands of the recipient unitholders.
B. Dividend Distribution Tax:
i) For Money Market and Liquid Schemes:
As per section 115R of the Act, the dividend distribution tax for Money Market and Liquid Fund is 25% plus surcharge.
ii) For Schemes other than Money Market and Liquid Schemes:
As per section 115R of the Act, income distribution tax shall be levied at 12.5% plus surcharge for distribution made to individuals or HUF and for any other person at 20% plus surcharge.
C. TDS on income of units
As per the provisions of section 194K and section 196A of the Act, where any income is credited or paid on or after 1st April 2003 by a Mutual Fund, no tax is required to be deducted at source.
D. Tax on cgains apital
(i) Long Term Capital Gains
Resident Unitholders
Any long term capital gain arising on redemption of units by residents is subject to treatment indicated under Section 48 and 112 of the Act. Long term capital gains in respect of units held for more than 12 months is chargeable to tax @ 20% after factoring the cost inflation index or tax at the rate of 10% without indexation, whichever is lower. The said tax rate is to be increased by surcharge, if applicable.
Non Resident Unitholders
Under section 115 E of the Act, in case of income of non resident Indians by way of long term capital gains, in respect of units is chargeable at the rate of 20% plus surcharge, if applicable. Chapter XIIA exclusively deals with taxation related to Non-resident Indians. Under section 115 D of the Income Tax Act, a non-resident Indian cannot avail the benefit of indexation.
In the alternative the capital gains tax may be computed by the non residents under section 112, if it is more beneficial to them. Under Section 112 of the Act, long term capital gains are taxed at the rate of tax @ 20% plus surcharge. The benefit of indexation is also available to the non residents under section 48 of the Income Tax Act, 1961. Gains on short term capital asset are taxed as regular income.
FIIs
As per section 115 AD of the Act, long term capital gains on sale of units are to be taxed @ 10% and short term gains are to be taxed@ 30%. Such gains in either case would be calculated without indexation benefit as the first and second provisos to section 48 do not apply to FIIs by virtue of section 115 AD (3) of the Act. The applicable tax rates is to be increased by applicable surcharge.
ii) Short Term Capital Gains
Units held for not more than twelve months proceeding the date of their transfer are short term capital assets. Capital gains arising from the transfer of short term capital assets will be subject to tax at the normal rates of tax applicable to such assessee.
E. TDS on capital gains
i) Resident Investors
As per Central Board of Direct Taxes (‘CBDT’) circular No.715 dated 8th August 1995, in case of resident unitholders no tax is required to be deducted from capital gains arising at the time of redemption of the units.
ii) for Non Resident Investors
Long Term Capital Gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 1 (b) (i) (D)}, the Mutual Fund is liable to deduct tax @ 20% on long term capital gains.
Short Term Capital Gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 1 (b) (i) (K)}, the Mutual Fund is liable to deduct tax @ 30% on short term capital gains.
Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge mentioned above.
iii) Other than a Domestic Company:
Long Term Capital Gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 2 (b) (viii)}, the Mutual Fund is liable to deduct tax @ 20% on long term capital gains.
Short Term Capital Gains
As per Part II of the First Schedule to the Finance Bill 2010 {Clause 2 (b) (ix)}, the Mutual Fund is liable to deduct tax @ 40% on short term capital gains.
(iv) FIIs:
In the case of Foreign Institutional Investors (FIIs), no tax would be deductible at source from the capital gains arising on redemption of units in view of section 196 D (2) of the Act.
Education Cess and Surcharge:
The TDS is to increased by applicable surcharge. Further an education cess @ 2% and secondary and higher education cess @1% is to be charged on amount of tax and surcharge.
Certain common provisions for equity oriented funds and other than equity oreinted funds 1. Double Taxation Avoidance Agreement (DTAA)
As per CBDT Circular No. 728 dated October 30, 1995, in the case of remittance to a country with which a DTAA is in force, the tax is to be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA, whichever is more beneficial to the assessee. For the unitholder to obtain the benefit of a lower rate available under a DTAA, the unit holder is required to provide the Mutual Fund with a certificate obtained from his Assessing Officer stating his eligibility for the lower rate.
2. Short Term Capital Losses
As per section 94(7), if any person acquires units within a period of 3 months prior to the record date fixed for declaration of dividend or distribution of income and sells or transfers the same within a period of 9 months from such record date, losses arising from such sale to the extent of income received or receivable on such units, which are exempt under the Act, will be ignored for the purpose of computing his income chargeable to tax.
Further, as per Section 94(8), where additional units have been issued to any person without any payment, on the basis of existing units held by such person then the loss on sale of original units shall be ignored for the purpose of computing income chargeable to tax, if the original units were acquired within 3 months prior to the record date fixed for receipt of additional units and sold within 9 months from such record date. However, the loss so ignored shall be considered as cost of acquisition of such additional units held on the date of sale by such person.
3. Investment by Trusts:
Investment in units of the Mutual Fund rank as eligible form of investment under section 11(5) and section 13 of the Act read with Rule 17C(i) of the Income Tax Rules, 1962 for Public Religious & Charitable Trust.
4. Higher TDS if PAN not available:
With effect from 01st April 2010, a new provision (section 206AA) has been inserted in the Act. As per this provision, any person entitled to receive any sum or income or amount, on which tax is deductible shall furnish his Permanent Account Number (PAN) to the person responsible for deducting such tax, failing which tax shall be deducted @ 20% or the prescribed rate, whichever is higher. Applicable surcharge, education cess and secondary & higher education cess will also be deducted on such amount of TDS.
4. Wealth Tax
Units of Mutual Fund are not covered under the definition of ‘assets’ under section 2(ea) of the Wealth Tax Act, 1957, and hence value of investment in units is completely exempt from Wealth Tax.
5. Gift Tax
The Gift Tax Act, 1958 has abolished the levy of Gift Tax in respect of gifts made on or after 1st October 1998. Thus, gifts of units on or after 1st October, 1998 are exempt from Gift Tax. Further, subject to certain exceptions, gifts from persons exceeding Rs.50,000/- are taxable as income in the hands of donee pursuant to section 2(24)(xiv) of the Act read with section 56(2)(vi) of the Act.
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