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tax

Sanjana (Student) (52 Points)

27 December 2010

Can any one tell me dat long term equity oriented mutual funds maturity is exempted from income tax or not?????????

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(Guest)

Long term capital gains from equity-oriented funds, is fully exempt from

tax. Long term capital gains from all other funds, is subject to taxation

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U S Sharma (glidor@gmail.com) (21063 Points)
Replied 28 December 2010

Section 10(38) by the Finance (No.2) Act, 2004 income arising from the transfer of a long-term capital asset being equity shares as also units of equity-oriented mutual funds would be exempted from the purview of long-term capital gains.

This exemption is however, not applicable on capital gains arising on sale of any type of equity share. It is very clearly mentioned that the exemption from tax in respect of such long-term capital gains would be available only when the transaction relating to sale of equity share or units of equity-oriented is entered into on or after 01-10-2004. Another condition to avail this exemption is that such transaction is chargeable to Securities Transaction Tax (STT). If a person sells shares of a listed company directly to a friend without routing it through a stock broker, then the benefits of exemption of long-term capital gains on such sale of equity shares would not be available.

Similarly, if the shares of a private limited company are sold after holding them for more than 12 months, the above mentioned benefits would not be available because such shares are not sold through the stock broker and thus the transaction is not subjected to STT. Therefore, in view of the fact that the shares of Private Limited Company are not chargeable to STT, the same would not enjoy any tax benefits.

If the sale of units of an equity-oriented fund results into a long-term capital gains, it would also be tax free if the said transaction is chargeable to STT.

It has been clarified that “equity oriented fund” would mean a fund where the investible funds are invested in equity shares of domestic companies to the extent of more than 50% of total corpus of the fund. Moreover, such a fund should have been set up as a scheme of a mutual fund in terms of section 23D of the Income-tax Act, 1961. It has also clarified that the percentage of equity share holding of the fund shall be computed as the annual average of its average monthly holding of equity based on opening and closing figures. Thus, where a mutual fund has exposure to equity investment of, say, only 15% to 25%, then the above mentioned benefit would not be available.

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