Mutual Funds Exemption Under Income Tax

Equity oriented mutual funds are defined under chapter xii e of income tax act 1961 ita as those mutual funds where equity holding is more than 65 of the total portfolio and which has been setup under a scheme of mutual fund specified under section 10 23d of ita.

Mutual funds exemption under income tax. Therefore income earned under both these sections do not require payment of taxes on them. Equity linked savings scheme elss is a type of equity fund and the only mutual fund scheme which qualifies for a tax deduction of rs. Only investments in equity linked saving schemes or elsss qualify for tax deduction under section 80c. 1 50 000 such limit is inclusive of other deductions offered under section 80c 80ccc and 80ccd.

The income tax act 1961 offers one major deductions on investment in certain kinds of mutual funds. From april 1st 2020 mutual funds dividends are taxed in the hands of investors at their income tax slab rate. Dividend income will be treated as normal income and added to the total income and is taxable at the income tax slab rate. They are designed such that investors can invest a small sum periodically.

An elss comes with a lock in period of 3 years which means an investment made in it cannot be withdrawn before 3 years. They are subject to short term capital gains tax scgt and is taxable as per the income tax slab you fall under. Under section 80c of the act an amount equal to the investment in equity linked savings scheme is deductible from the taxable income of an assessee subject to a maximum limit of rs. Systematic investment plans are a method of investing in mutual funds.

It must be noted that tax on dividends was taxable earlier. Investments in nps qualify for exclusive tax deduction under section 80ccd 1b. Most investors prefer to invest in this mutual fund instrument as it offers capital appreciation and tax benefits as well. Therefore only balance stcg will be liable to income tax at the rate of 15.

All elss funds qualify for the tax deduction under section 80c. Section 10 23d of the income tax act 1961 exemptions income of mutual fund set up by any public sector ban k or public financial institutions notified funds notification 10212 08 10 1996 exemption of income of mutual fund set up by any public sector bank or public financial institution notified mutual funds. Hybrid equity oriented funds are taxed as any other equity fund while hybrid debt oriented funds are taxed as any other debt fund. This instrument come with a 3 year lock in period.

1 5 lakh per annum under section 80c of the income tax act. In addition section 10 35 talks about income received from investment in mutual funds also being exempt from taxes. Investors can claim tax deduction of up to rs 1 5 lakh under section 80c of the income tax act. Equity linked savings scheme.

This is done to reduce the burden on small investors.