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K. ARAVIND

Over the last few years, the acceptance of mutual funds among the general investor has been increasing. At the same time, it is important to remember that mutual fund units are subject to sales tax on long-term investors.

If the return on sale of shares and equity mutual fund units after holding them for one year or more is more than Rs.1 lakh, a tax of 10 per cent is payable. Tax is not applicable if the gain is less than Rs.1 lakh. Short-term capital gains tax is 15 per cent of the gain on sales after holding for less than a year. Short-term capital gains tax is applicable regardless of the gain.

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Dividend plans of mutual funds are subject to the current 10 per cent dividend distribution tax. These funds are to be paid by mutual funds. The NAV of the fund unit decreases according to the tax paid.

If the debt funds are sold after three years, they will be taxed at 20 per cent of the amount received in excess of the current value calculated under the Cost Inflation Index of the previous investment. If it is sold before three years, the tax should be paid as per the tax slab.

Equity funds are funds that invest more than 65 per cent of their assets in equities. In addition to funds classified on the basis of market value, equity funds include equity linked savings schemes, hybrid equity oriented funds and arbitrage funds. Non-equity funds include debt funds, gold funds, hybrid debt oriented funds, international funds and funds of off funds.

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When selling units purchased under the Systematic Investment Plan (SIP), the tax should be calculated considering the date of purchase of each unit. The tax liability will be calculated in the order in which the first purchased units are sold first.

This type of tax should be calculated even when making a systematic transfer plan. Suppose you are investing in a systematic transfer plan from a liquid fund to an equity fund. Liquid funds benefit from the sale of units each month. This gain is taxable.

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It is important to remember that the tax is also applicable to the systematic withdrawal plan through with you withdraw a fixed amount every month. Gains from units sold each month are calculated and taxed.

In the event of the death of the investor, the mutual fund units are transferred to the nominee’s account. In such a case, capital gains tax is not applicable. However, tax is applicable on the sale of these units. The tax should be calculated on the basis of the purchase price of the original investment units.