Summary of "NISM VA Mutual Fund Chapter 8 - TAXATION | 2024 - New Syllabus | #nism5a #nism"

Video Summary: NISM VA Mutual Fund Chapter 8 - TAXATION | 2024 - New Syllabus

This video covers the taxation aspects of mutual fund investments, focusing on capital gains, dividend income, tax rates, exemptions, and related regulatory concepts relevant for mutual fund distributors and investors.

Key Finance-Specific Content

1. Types of Income from Mutual Funds

Capital Gains: Profit earned when mutual fund units are sold at a price higher than the purchase price.
- Taxable only when units are sold (realized gain).
Dividend Income: Dividends paid by companies within the mutual fund are distributed to investors.
- Growth plans reinvest dividends, increasing NAV and capital gains.
Both capital gains and dividends are taxable.

2. Capital Gains Taxation

Short-Term Capital Gains (STCG) and Long-Term Capital Gains (LTCG) are distinguished by holding period.

Fund Type Holding Period for LTCG STCG Tax Rate LTCG Tax Rate Equity Funds > 1 year 15% 10% (on gains > ₹1 lakh) Debt Funds > 3 years Marginal tax rate (income slab) 20% with indexation benefit

Indexation Benefit applies only to long-term capital gains on debt funds, adjusting cost of acquisition for inflation, reducing taxable gains.

Formula: Indexed Cost = Actual Cost × (Cost Inflation Index of Year of Sale / Cost Inflation Index of Year of Purchase)

Example: Investment of ₹1 lakh in 2015 sold in 2019 for ₹1.3 lakh; indexation reduces taxable gain from ₹30,000 to about ₹14,763, lowering tax liability.

3. Dividend Taxation

Old Regime: Dividend Distribution Tax (DDT) of 10% was deducted by mutual funds before paying dividends.
New Regime: DDT abolished; dividends are taxable in the hands of investors as per their income tax slab.
- TDS of 10% applies if dividend income exceeds ₹5,000 in a financial year.
Dividend income is added to total income and taxed accordingly.
Dividend income exemption limit of ₹10 lakh per annum applied under old regime (now removed).

4. Security Transaction Tax (STT)

STT of 0.01% applies on sale/redemption of equity mutual fund units.
No STT on purchase of equity units or transactions in debt/non-equity funds.
Applies on switching between equity schemes as it involves selling units.

5. Tax Deducted at Source (TDS)

TDS of 10% on dividend income exceeding ₹5,000.
No TDS on capital gains.

6. Set-Off and Carry Forward of Capital Losses

Long-term capital losses can be set off only against long-term capital gains.
Short-term capital losses can be set off against both short-term and long-term capital gains.
Capital losses cannot be set off against other income (salary, business, property).

7. Dividend Stripping and Bonus Stripping

Dividend Stripping: Buying units before dividend declaration and selling soon after to claim capital loss and avoid tax on dividend.
Bonus Stripping: Similar concept with bonus units issued.
Government introduced rules preventing setting off losses if units bought within 3 months prior and sold within 9 months after dividend/bonus record date.

8. Equity Linked Savings Scheme (ELSS)

Eligible for tax deduction under Section 80C up to ₹1.5 lakh per annum.
Lock-in period of 3 years.
Helps reduce taxable income, beneficial for individuals and Hindu Undivided Families (HUFs).

9. GST on Mutual Funds

GST applies on investment management and advisory fees, brokerage, and transaction costs, included in the Total Expense Ratio (TER).
GST on distributor commissions is borne by distributors, not passed on to investors.
No GST on exit loads; exit load is charged separately.

Instruments, Sectors, and Assets Mentioned

Equity Funds (e.g., Nifty 50 Index Fund)
Debt Funds / Non-Equity Funds
Equity Linked Savings Scheme (ELSS)
Dividend Income from Stocks and Mutual Funds
Capital Gains from Mutual Fund Units
Security Transaction Tax (STT)
Cost Inflation Index (CII) for indexation calculation

Methodology / Framework for Taxation

Understand type of mutual fund (equity vs debt).
Determine holding period for classification into short-term or long-term capital gain.
Calculate capital gain: Sale price - Purchase price = Capital gain or loss.
Apply indexation benefit for debt funds LTCG.
Apply relevant tax rates:
- Equity STCG = 15%, LTCG = 10% (above ₹1 lakh exemption)
- Debt STCG = marginal tax rate, LTCG = 20% with indexation.
Calculate dividend income and include in taxable income.
Deduct TDS if applicable.
Use set-off rules to reduce tax liability on capital losses.
Consider tax benefits under Section 80C for ELSS investments.

Key Numbers and Timelines

STCG on equity funds: 15% if held ≤ 1 year.
LTCG on equity funds: 10% if held > 1 year, exempt up to ₹1 lakh gains.
STCG on debt funds: Taxed at marginal rate if held ≤ 3 years.
LTCG on debt funds: 20% with indexation if held > 3 years.
TDS on dividends: 10% if dividend > ₹5,000 in a year.
ELSS deduction limit: Up to ₹1.5 lakh under Section 80C.
Lock-in period for ELSS: 3 years.
STT on equity mutual fund sale: 0.01%.

Disclaimers / Cautions

Taxation rules are subject to change; always verify with current Income Tax Act and SEBI guidelines.

This is not financial advice; viewers should consult a tax advisor for personalized tax planning.

Video primarily for NISM exam preparation.

Presenter / Source

Presenter: Finance with Nobita (YouTube Channel)
Content based on NISM VA Mutual Fund Distributor Syllabus 2024, Chapter 8 - Taxation.

This summary captures the detailed taxation framework for mutual funds as explained in the video, useful for exam preparation and practical understanding of mutual fund taxation in India.