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home > Mutuals Funds > Basics of Mutual Funds > Mutual Funds Tax Perspective
 MUTUAL FUNDS TAX PERSPECTIVE

Introduction

 
For the purpose of tax-treatment, all funds are classified as equity oriented or debt oriented funds. An equity oriented fund means a fund where investments in equity shares in domestic companies is more than 65% of the assets. If a fund is able to meet this condition, it is treated as equity oriented fund, else as debt oriented fund.
   
BULLET
Individual residents
 
Applicable tax rates:
 
Fund type Long Term Capital Gains Short Term Capital Gains Dividend Distribution Tax (DDT) Securities Transaction Tax (STT)
Equity Oriented Funds Nil 11.22% (10% plus surcharge and educational cess) Nil (for both open and close ended schemes) Dividends are completely tax-free STT at 0.25% is being levied on the redemption value
ELSS Nil Not applicable as the fund has a lock-in period of three years Nil
Dividends are completely tax-free
STT at 0.25% is being levied on the redemption value
Debt Oriented Funds 20% with indexation or 10% without indexation (plus applicable surcharge and educational cess) Normal slab rate plus surcharge and educational cess. Amounting to 33.66% for investors falling under highest tax bracket DDT at 14.025 % (12.5% plus surcharge and educational cess) is deducted at source. Therefore, dividends are tax-free in the hands of investors. N.A.
Fund of Funds Treated as a debt oriented fund
Capital Protected Funds Whether the fund qualifies as an equity-oriented fund or a debt-oriented fund would depend upon its investment pattern for a period preceding the maturity period.

However, if an investor redeems before the maturity period, decision whether it is equity-oriented or debt-oriented would depend upon its investment pattern for a period preceding redemption.
   
BULLET
Applicable tax deductions:
 
ELSS Eligible for tax deduction u/s 80 c for an amount up to Rs. 1 lakh
   
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