Ch.8 · Taxation

Dividend and STT Taxation

40 practice questions on this topic

How is LTCG on equity mutual funds calculated when units were purchased before January 31, 2018?

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EXPLANATION

LTCG on equity mutual funds was introduced from April 1, 2018. To protect gains accumulated before this date, a grandfathering provision was introduced: the cost of acquisition for units purchased before January 31, 2018 is the higher of (a) actual purchase cost or (b) NAV as on January 31, 2018. This ensures gains up to January 31, 2018 are not taxed under LTCG.

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What is the tax treatment of IDCW (dividend) received from equity mutual funds?

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EXPLANATION

As per the Finance Act 2020, IDCW (previously called dividend) from all mutual fund schemes — equity or debt — is taxable in the hands of investors at their applicable income tax slab rate. TDS at 10% is deducted by the AMC if IDCW paid to an investor exceeds ₹5,000 in a financial year (for resident Indians). IDCW was previously exempt under the DDT regime (pre-April 2020).

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How does a mutual fund distributor's commission income get taxed?

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EXPLANATION

Mutual fund distributor commission is income from business or profession (if the distributor operates as an individual/entity). It is added to total income and taxed at applicable slab rates. AMCs deduct TDS at 5% under Section 194H on commissions exceeding ₹15,000 in a financial year. GST at 18% is also applicable on commission income above the GST registration threshold (₹20 lakh).

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What is 'Section 80TTB' and its relevance to senior citizen mutual fund investors?

A.Section 80TTB provides ₹50,000 deduction on capital gains for senior citizens

B.Section 80TTB provides ₹50,000 deduction on interest income (savings, FD, post office) for senior citizens — it does NOT apply to mutual fund IDCW or capital gains

C.Section 80TTB exempts all investment income for senior citizens

D.Section 80TTB provides full tax exemption for senior citizens on equity mutual funds

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Can a mutual fund investor set off equity LTCG loss against equity LTCG from direct stock investments?

A.No — mutual fund gains and stock gains are treated as separate baskets

B.Yes — LTCG losses from equity mutual funds can be set off against LTCG from listed equity shares and vice versa since both are long-term capital assets

C.Yes, but only within the same financial year, not carried forward

D.No — mutual fund losses can only be set off against other mutual fund gains

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How does a mutual fund's tax efficiency compare to a bank Fixed Deposit (FD) for an investor in the 30% tax bracket?

A.FD is always more tax-efficient than mutual funds

B.Equity mutual fund LTCG (12.5%) is significantly more tax-efficient than FD interest (taxed at 30%); debt funds (slab rate) are now similar to FD taxation post April 2023 changes

C.Both are equally tax-efficient since both are declared in ITR

D.Mutual funds are always more tax-efficient than FD for all categories

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How is STCG on debt mutual funds taxed after April 1, 2023?

A.At 15% flat rate similar to equity STCG

B.At the investor's applicable income tax slab rate

C.At 20% with indexation benefit

D.Debt fund STCG is exempt

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What is the 'Section 54EA and 54EB' relevance to mutual fund investors (historical)?

A.These sections currently provide exemption for equity mutual fund LTCG

B.These were historical provisions (now withdrawn) that allowed LTCG reinvestment into specific bonds/securities for tax exemption — currently not available for mutual fund gains

C.These sections provide tax exemption for ELSS investments

D.These sections provide exemption for NRI investors in mutual funds

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What is 'STT' (Securities Transaction Tax) on mutual fund redemptions?

A.STT is charged on all mutual fund redemptions at 0.1%

B.STT at 0.001% is charged on redemption of equity-oriented mutual fund units — this STT payment is the basis for concessional LTCG/STCG tax rates

C.STT is charged on debt fund purchases at 0.25%

D.STT is not applicable to mutual fund transactions — only direct stock trades

Q10

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What is the tax on mutual fund gains earned by a minor investor?

A.Minors are exempt from all capital gains tax

B.Minor's income (including mutual fund gains) is clubbed with the higher-earning parent's income and taxed at the parent's applicable slab rate — with an exemption of ₹1,500 per year per child

C.Minors pay tax at a concessional flat rate of 5%

D.Minor's income is taxed independently at the basic exemption threshold

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