Income From Mutual Fund Is Exempt

Any dividend declared by a debt mutual fund is exempt from tax in the hands of investors.

Income from mutual fund is exempt. Section 10 35 a of ita states that any income received in respect of the units of mutual funds specified u s 10 23d of ita is exempt from tax. In selecting securities for the fund the adviser performs in depth credit analysis of the issuer s creditworthiness and of the security structure. Tax exempt funds are a smart way to reduce your income taxes but they re not for everyone. Although tax exempt mutual funds usually produce lower yields you generally don t have to pay federal taxes on earnings from tax exempt money market and bond funds.

It must be noted that tax on dividends was taxable earlier. However mutual funds are broadly categorized as equity funds debt funds and hybrid funds. Therefore income earned under both these sections do not require payment of taxes on them. In this article we want to discuss mutual fund taxation and help you understand how your mutual fund returns are taxed.

Income tax on mutual fund. However as per the proposals of budget 2020 dividend income from mutual funds will be taxable. Investing in these funds can reduce our total income however the maximum limit is rs 1 50 000 and a lock in period of 3 years. Mutual funds invested in government or municipal bonds are often referred to as tax exempt funds because the interest generated by these bonds is not subject to income tax.

Tax on mutual funds types of mutual funds in india. And you can save even more if you live in a state that offers similar exemptions. As a result of this provision the dividend received from equity mutual funds is exempt from tax. Therefore prima facie it can be concluded that tds will be there on dividend income as well as capital gains income from mutual funds earlier dividend income from mutual funds was exempt in the hands of receiver by virtue of section 10 35.

You may have heard of words like debt funds equity funds elss funds index funds liquid funds income funds being used often. In addition section 10 35 talks about income received from investment in mutual funds also being exempt from taxes. These are called tax saving mutual funds or elss equity linked saving scheme.