Mutual funds alert! Know these income tax rules and save your money

Mutual fund investment are made with the intent to generate higher returns than debt funds like Public Provident Fund, bank fixed deposits, EPF, Provident fund.

In a mutual fund dividend plan, the dividend amount comes into the hands of mutual fund investors after the income tax deduction. Photo: Reuters

Mutual fund investment are made with the intent to generate higher returns than debt funds like Public Provident Fund, bank fixed deposits, EPF, Provident fund. While debt funds give income tax benefits both on investment and maturity, mutual funds have different tax norms when it comes to maturity. There are different tax norms for different categories — debt, equity — of the mutual funds. In mutual fund investment, an investor has the choice to choose a dividend plan or a simple plan. Change of choice by the investor leads to change of tax outgo norms.

Speaking on the income tax norms applied on various categories of mutual funds, tax expert Sunil Garg said, "In mutual fund dividend plan, the dividend amount comes into the hands of mutual fund investor after the income tax deduction. So, it's very important for the mutual fund investor to know the exact income tax outgo on his or her dividend amount."

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Elaborating upon the income tax outgo on various categories of the mutual funds, Garg said, "In debt mutual funds, if an investor has chosen dividend plan, he or she will have to give 28 per cent tax while in the case of equity mutual fund dividend plan, an investor needs to pay 11 per cent income tax on one's dividend amount." However, Garg made it clear that this income tax outgo on the dividend amount is different from the taxes at the time of maturity or withdrawal of the mutual fund plan. "In the case of mutual fund maturity, if an investor has chosen debt mutual fund, then he or she will have to pay Long Term Capital Gain or LTCG Tax if the investment is more than one year old. Similarly, in the case of equity mutual funds, LTCG Tax gets applied if the investment is more than one year old."

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