Type

Scheme

PARTICULARS

 Direct Plan

SECTION 194Q

PurposeTax to be collectedTax to be deducted
ApplicabilitySellerBuyer/Purchaser
Counter partyResident BuyerResident Seller
Trigger point• Turnover/ Gross Receipt/ Sales from the business of SELLER should exceed Rs 10 crore during the year (FY 19-20) (excluding GST)• Turnover/ Gross Receipt/ Sales from the business of BUYER should exceed Rs 10 crore during the year (FY 20-21) (excluding GST)
W.E.F1st October, 20201st July, 2021
Timing of tax deductionAt the time of receiptPayment or credit whichever is earlier
Rates• 0.1% (0.075% for FY 2020-21)
• 1% (If PAN not available)
• On amount exceeding Rs 50 Lakhs
• 0.1%
5% (If PAN not available)
• on amount exceeding Rs 50 Lakhs
Not applicable to• Transaction on which TDS/TCS is applicable under other provisions of the act and the same has been complied with (Meaning thereby; in a situation where TDS has been deducted u/s 194Q this section will not apply)• Transactions on which TDS is applicable under other provisions of the act
• Transactions on which TCS is applicable under 206C other than 206C(1H)
Form27EQ26Q
Certificate to be issued to seller/buyerForm – 27DForm – 16A
Example
Sr. No

 Buyer's Turnover

Seller's Turnover

Transaction Value`

Applicability of Section

15 cr11 cr55 lakhs206C (1H) - Seller will collect TCS
215 cr7 cr58 lakhs194Q - Buyer will deduct TDS
312 cr13 cr54 lakhs194Q - Buyer will deduct TDS
47 cr5 cr58 lakhsNone
512 cr15 cr45 lakhsNone


Deduction from total income

Under section 80C of the Act, an assesse, being an individual or HUF, is eligible to claim a deduction upto an aggregate of Rs. 1.5 lacs on account of sums paid as subscription to units of an Equity Linked Savings Scheme.

The expression "Equity Linked Savings Scheme " refers to Equity Linked Savings Scheme, 2005 as notified by the Central Board of Direct Taxes, Ministry of Finance vide notification dated November 3, 2005 as amended vide notification dated December 13, 2005.

Securities Transaction Tax

Under Chapter VII of Finance (No. 2) Act, 2004 the unit holder is liable to pay Securities Transaction Tax (''STT'') in respect of "taxable securities transaction" at the applicable rates. Taxable securities transactions include purchase or sale of units of an equity oriented fund, entered into on the stock exchange or sale of units of an equity oriented fund to the mutual fund.

The seller of units of an equity oriented fund is liable to pay STT (w.e.f. 1st June, 2013) where the purchase and sale is entered into on a recognized stock exchange and the contract for the purchase and sale of such units is settled by actual delivery or transfer of such units.

At the time of sale of units of equity oriented fund to the mutual fund, the seller is required to pay an STT @ 0.001%.

The securities transaction tax paid by the assesse during the year in respect of taxable securities transactions entered in the course of business shall be allowed as deduction under section 36 of the Act subject to the condition that such income from taxable securities transactions is included under the head ''profits and gains of business or profession''.

Wealth Tax
Units held under the Scheme of the Fund are not liable to wealth tax as it has been abolished with effect from financial year 2015-16.

Incomes from Units

There are two types of income received from units
1) Income from capital gains
2) Dividend Income
Taxability of the same are detailed in the questions described further

Dividend Distribution Tax

As per Finance Bill 2020 , DDT has been abolished with effect from April 01,2020.

Gains on transfer / redemption of Units

Gains arising on transfer / redemption of Units as well as switching between schemes will be chargeable to tax under the Act. The characterization of income from investment in securities as ''business income'' or ''capital gains'' will have to be examined on a case-to-case basis.

Gift Tax

The Gift -Tax Act, 1958 has been repealed since October 1, 1988. Gift of units of Mutual fund units would be subject to income-tax in the hands of the donee (receiver of gift). As per section 56(2)(vii), receipts of securities, fair market value of which exceeds fifty thousand rupees, without consideration or without adequate consideration is taxable as income in the hands of individuals / HUFs.

Further the above provision of section 56(2)(vii) shall not apply to any units received by the done.

a.From any relative; or
b.On the occasion of the marriage of the individual; or
c.Under a will or by way of inheritance; or
d.In contemplation of death of the payer or donor, as the case may be; or
e.From any local authority as defined in the Explanation to clause (20) of section 10 of the Act; or
f.From any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10 of the Act; or
g.From any trust or institution registered under section 12AA of the Act.

Relative shall mean:

ispouse of the individual;
iiBrother or sister of the individual;
iiiBrother or sister of the spouse of the individual;
ivBrother or sister of either of the parents of the individual;
vAny lineal ascendant or descendant of the individual;
viAny lineal ascendant or descendant of the spouse of the individual;
viiSpouse of the person referred to in clauses (ii) to (vi);


Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

The Finance Act 2020 gives an option to the tax payer to either pay tax in the Old Regime (OPTION 1) or opt for tax rates according to the New Regime (OPTION 2)

OPTION 1 - OLD REGIME
Tax Slab for Financial Year 2021-22 (Assessment Year 2022-2023)

General tax payers:

Annual incomeTax Rate
0 to 2,50,000 No Tax
2,50,001 to 5,00,0005%
5,00,001 to 10,00,00020%
Above 10,00,00030%

Senior Citizens tax payers: Aged 60 years but less than 80 years
Annual incomeTax Rate
0 to 3,00,000 No Tax
3,00,001 to 5,00,0005%
5,00,001 to 10,00,000 20%
Above 10,00,000  30%

Very Senior Citizens tax payers: Aged 80 years or above years or above

Annual incomeTax Rate
Annual Income Tax Rate 
0 to 5,00,000No Tax
5,00,001 to 10,00,000 20%
Above 10,00,00030%

OPTION 2 - NEW REGIME

Tax Slab for Financial Year 2021-22 (Assessment Year 2022-2023)

General tax payers:

Income Tax SlabTax Rate
0 to 2.5 Lakh0%
2.5 Lakh to 5 Lakh5%
5 Lakh to 7.5 Lakh10%
7.5 Lakh to 10 Lakh15%
10 Lakh to 12.5 Lakh20%
12.5 Lakh to 15 Lakh25%
15 Lakh and above30%
There will be No Deduction & Exemptions allowed if tax payer chooses the New Tax regime

Surcharge (Applicable under both options)
No surcharge if income is less than Rs. 50 lakhs
10% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 50 Lakhs to 1 crore
15% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 1crore to 2 crore
25% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 2 crore to 5 crore
37% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 5 crore

Health & Education Cess @ 4% (Applicable under both options)

A tax rebate of ₹ 12,500 from tax calculated or 100 % of tax liability (which ever is lower) will be available to tax payers having an annual income up to ₹ 5 lakh u/s 87A (Applicable under both options)

Scheme NamesQLF/QGSF/QEFOF/QMAFOF/QDBFQGF-Gold ETFQLTEVF/QTSF/QN50 ETF/QIESG/QN50ETFFOF
Tax on Capital Gains
Long TermShort TermLong TermShort TermLong TermShort Term
Resident Individuals & HUF20% with IndexationMaximum 30%20% with IndexationMaximum 30%For Listed Securities:
10% + Applicable Surcharge + 4% Health & Education cess The amount of capital gain in excess of Rs 1,00,000/- in a year will be taxable @ 10%, However relief to the extent of capital gains as on 31st January, 2018.














15% + Applicable Surcharge + 4% Health & Education Cess
FII’s / Overseas Financial Organisations20% with Indexation for Listed Securities and 10% without Indexation (on transfer of long term capital assets being unlisted securities)30%10% without Indexation30%10% + Applicable Surcharge + 4% Health & Education cess
Partnership Firm20% with Indexation30%20% with Indexation30%For Listed Securities:
10% + Applicable Surcharge + 4% Health & Education cess The amount of capital gain in excess of Rs 1,00,000/- in a year will be taxable @ 10%, However relief to the extent of capital gains as on 31st January, 2018.
Non Resident Indians20% with Indexation for Listed Securities and 10% without Indexation (on transfer of long term capital assets being unlisted securities)Maximum 30%20% with Indexation (on transfer of long term capital assets being listed securities)Maximum 30%10% + Applicable Surcharge + 4% Health & Education cess
Indian Companies20% with Indexation30%20% with Indexation30%For Listed Securities:
10% + Applicable Surcharge + 4% Health & Education cess The amount of capital gain in excess of Rs 1,00,000/- in a year will be taxable @ 10%, However relief to the extent of capital gains as on 31st January, 2018.
Foreign Companies20% with Indexation for Listed Securities and 10% without Indexation (on transfer of long term capital assets being unlisted securities)40%20% with Indexation (on transfer of long term capital assets being listed securities)30%10% + Applicable Surcharge + 4% Health & Education cess
* The mentioned tax rates shall be increased by applicable surcharge, if any and Health & Education Cess @ 4% . This shall apply to all the categories of tax payers.
Equity oriented schemes will also attract Securities Transaction Tax (STT) @ 0.001% at the time of redemption and switch to other schemes.
Mutual fund would also pay Securities Transaction Tax wherever applicable on the securities bought/sold.
For further details on Taxation please refer the clause of Taxation of SAI and read respective SID.


Cost-Inflation Index
Cost Inflation Index (CII) is a figure that is announced by the tax authorities each year that represents the impact of the inflation in the economy. This is a figure that will determine the extent of the benefit that the individual will receive on their investments when they sell them and a capital gains tax has to be paid on it.

The cost inflation index (CII) is calculated as shown:

           Inflation Index for year in which asset is sold
CII = ------------------------------------------------------------------------
           Inflation Index for year in which asset was bought

This index is then multiplied by the cost of the purchase to arrive at “indexed cost”.
For e.g. let’s assume the following ;
A Debt Fund was purchased in FY 2005-06 for Rs. 60 Lacs
The same fund was sold in FY 2017-18 for Rs. 1.50 Crores
Cost Inflation Index in FY.2005-06 was Rs.117 and in 2017-18 it was Rs.272
So, indexed cost would be:

                           272
Rs.60,00,000 X ------ = Rs.1,39,48,717.95
                           177

Now let us calculate LTCG using indexation
Long Term Capital Gains would be calculated as:-
Capital Gains = Selling Price of an asset – Indexed Cost

i.e. Rs.1,50,00,000 - Rs.1,39,48,717.95 = Rs.10,51,282.05

Therefore tax payable will be 20% (excluding applicable surcharge and cess) of Rs. 10,51,282.05 which comes to Rs.2,10,256.41

Please note that as per the present taxation rules, it is mandatory for resident individuals to apply above indexation method while calculating long term capital gain tax on Debt Funds.

Now let us calculate LTCG without indexation (Applicable only in case of Non Resident Indians (NRIs))

Capital Gains tax would have been as follows:-

Capital Gains = Selling Price of an asset – Cost of acquisition

i.e. Rs.1,50,00,000 – Rs.60,00,000 = Rs.90,00,000

Therefore tax payable @ 10% (excluding applicable surcharge and cess) of Rs. 90,00,000 would have come to Rs. 9,00,000 !!


Short term Capital Gains (STCG*)
Individual/ HUF $ 
Equity oriented schemes ** 15% + Applicable Surcharge + 4% Health & Education Cess
Other than equity oriented schemes 30%^ + Applicable Surcharge + 4% Health & Education Cess
Domestic Company $$ 
Equity oriented schemes ** 15% + Applicable Surcharge + 4% Health & Education Cess
Other than equity oriented schemes 30%^ + Applicable Surcharge + 4% Health & Education Cess
NRI *$ 
Equity oriented schemes **  15% +Applicable Surcharge + 4% Health & Education Cess
Other than equity oriented schemes  30% +Applicable Surcharge + 4% Health & Education Cess

Long Term Capital Gains (LTCG*)
Individual/ HUF $ 
Equity oriented schemes**For Listed Securities:
10% Applicable Surcharge + 4% Health & Education Cess
The amount of capital gain in excess of Rs 1,00,000/- in a year will be taxable @ 10%, However relief to the extent of capital gains as on 31st January, 2018.
 For Unlisted Securities:
10% with Indexation + Applicable Surcharge + 4% Health & Education Cess
The amount of capital gain in excess of Rs 1,00,000/- in a year will be taxable @ 10%, However relief to the extent of capital gains as on 31st January, 2018 and subject to in a case where the capital asset is an equity share in a company which is:
(A) not listed on a recognised stock exchange as on the 31st day of January, 2018 but listed on such exchange on the date of transfer;
(B) listed on a recognised stock exchange on the date of transfer and which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st day of January, 2018 by way of transaction not regarded as transfer under Section 47
Other than equity oriented schemes20% with Indexation + Applicable Surcharge + 4% Health & Education Cess
Domestic Company $$ 
Equity oriented schemes**10% + Applicable Surcharge + 4% Health & Education Cess
The amount of capital gain in excess of Rs 1,00,000/- in a year will be taxable @ 10%, However relief to the extent of capital gains as on 31st January, 2018.
Other than equity oriented schemes20% with Indexation + Applicable Surcharge + 4% Health & Education Cess
NRI *$ 
Equity oriented schemes**$10% without Indexation +Applicable Surcharge + 4% Health & Education cess
Other than equity oriented schemes10% without Indexation +Applicable Surcharge + 4% Health & Education cess

*Applicability of STCG and LTCG
Applicability in STCGLTCG
Equity oriented schemesUnits held for 12 months or lessUnits held for more than 12 months
Other than equity oriented schemesUnits held for 36 months or lessUnits held for more than 36 months

$ Surcharge at the rate of :
Nil rate when income is less than Rs 50 lakhs
10% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 50 Lakhs to 1 crore
15% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 1crore to 2 crore
25% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 2 crore to 5 crore
37% shall be levied in case of individual / HUF unit holders where their income exceeds Rs 5 crore
$$ Surcharge at the rate of 7% shall be levied for domestic corporate unit holders where the income exceeds Rs 1 crore but less than 10 crores and at the rate of 12%, where income exceeds 10 crores.
*The short term/long term capital gain tax will be deducted (applicable surcharge is not deducted ) at the time of redemption of units in case of NRI investors only.
** STT @ 0.001% will be deducted on equity funds at the time of redemption and switch to the other schemes.
Mutual Fund would also pay securities transaction tax wherever applicable on the securities bought / sold.
^ Assuming the investor falls into highest tax bracket.

From April 01,2020 onwards, Mutual Funds are liable to deduct tax on dividend income distributed to investors.

Status of individual / CompanyBase Rate of TaxSurcharge as a % of Basic Rate of tax (Considering highest tax bracket )Education CessEffective Rate (including Surcharge & Education Cess)
Resident (other than company)10%0%0%10%
Domestic Company10%0%0%10%
Non-Residents (Non Corporates not being a firm, cooperative society and local authority )20%37%4%28.496%
Non-Residents (Non Corporates being a Firm, cooperative society and local authority)20%12%4%23.296%
Non-Residents (Corporates)20%5%4%21.840%

Income from Mutual Fund can be divided into 2 parts Capital Gain (increase in value of your investment) or dividends that investors receive on regular intervals if they have opted for dividend plans. So taxation of Mutual Funds in India can be divided in 2 parts Capital Gain & Dividends.

Capital Gain Taxation on Mutual Funds

Capital Gain is appreciation in the value of asset – if you buy something for Rs. 1 Lakh & sell it for Rs. 1.5 Lakh, you have made a Capital Gain of Rs. 50,000. Capital Gains are further divided into short term & long term depending on their investment horizon.

Short Term Capital Gain arises in case of equity oriented schemes if investment is held for 12 months or less or in simple words sold on or before completion of 1 year. In case of other than equity oriented schemes Short Term Capital Gain arises if investment is hold held for 36 months or less or in simple words sold on or before completion of 3 years.

Long Term Capital Gain arises in case of equity oriented schemes if investment is sold after 1 year and in case of other than equity oriented schemes if sold after 3 years.

Mutual Fund Capital Gain Tax further depends on which type of fund it is – Equity or Other than equity.

Mutual Fund Dividend Taxation


"As per Finance Bill 2020 , mutual funds are liable to deduct TDS on dividend income distributed to the investor
This dividend income will be part of taxable income in the hands of the investor"

For NRIs in case of Short Term Capital Gain there will be a TDS (tax deducted at source). Which means Tax will be deducted by Mutual Fund Company before paying redemption (sell) amount.
Tax is deducted at Source for NRIs as per the below table;
 Short term capital gainsLong term capital gains
Equity oriented schemes 15% +  4% Health & Education Cess = 15.60%10% without Indexation + 4% Health & Education cess = 10.40%
Other than equity oriented schemes  30% +  4% Health & Education Cess = 31.20%10% without Indexation + 4% Health & Education cess = 10.40%


Dividend will be distributed after deduction of the applicable TDS Rates. The dividend income will form part of the total taxable income of the investor.

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