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Tax on Equity Funds

Depending on whether the gain on sale is classified as short term or long term capital gains, equity mutual funds are subject to capital gains tax. Both resident and non-resident Indians pay the same capital gains tax rates.

Short-term capital gains (STCG) on the redemption of equity fund units are taxed at a rate of 15%. Long-term capital gains (LTCG) on equities funds up to Rs 1 lakh are tax-free. However, LTCG on stock fund redemptions above Rs 1 lakh is taxed at a rate of 10%, with no indexation benefit.

If the cumulative capital gain in a financial year exceeds INR 1 lakh, an LTCG tax of 10% is imposed on equities funds. When making financial plans, keep in mind that your gains are tax-free up to INR 1 lakh.

Tax on Debt Funds

When you sell a debt fund within three years, you generate short-term capital gains. These gains are added to your total income and taxed according to your tax bracket. When you redeem your debt fund assets after three years, you will realize long-term capital gains. After indexation, these profits are taxed at a rate of 20%.

In the case of non-equity funds (debt funds), long-term is defined as a holding period of three years or longer, and a 20% LTCG tax is imposed on such assets with indexation, which means the purchase price is adjusted upwards for inflation when computing capital gains. Profits from investments held for less than three years are subject to the STCG tax, which is the highest income tax bracket for individuals.

Tax on Hybrid or Balanced Funds

Hybrid or Balanced Funds

If a hybrid fund’s equity exposure exceeds 65 percent, the fund is taxed as an equity fund. If not, the provisions for debt fund taxation apply. As a result, you must be aware of the equity exposure before investing in a hybrid fund in order to properly manage your taxes.

How to Save Taxes With Mutual Funds?

The only mutual fund scheme that qualifies for a tax deduction of Rs. 1.5 lakh per year under Section 80C of the Income Tax Act is the Equity-Linked Savings Scheme (ELSS). An ELSS has a 3-year lock-in period, which means that an investment made in it cannot be withdrawn before that time. By investing in an equity-linked savings scheme (ELSS), the top tax-saving investment under Section 80C, you can save up to Rs 46,800 each year in taxes. The majority of ELSS mutual funds’ assets are allocated to equities and equity-linked securities.

How Mutual Fund Dividend is Taxed?

When it comes to dividends received from equities mutual funds, investors have no tax burden. Dividends, on the other hand, reach investors after a deduction of 11.648 percent Dividend Distribution Tax (DDT) (including surcharge and cess), lowering the overall in-hand return.

Debt mutual fund distributions are tax-free in the hands of the investor, but dividend disbursements are subject to a 29.12 percent dividend distribution tax (including cessation and surcharge). This effectively lowers the in-hand returns of investors.

At the time of unit redemption, a Securities Transaction Tax (STT) of 0.001 percent is imposed on equity-oriented mutual funds. STT is taken from mutual fund returns, so an investor does not have to pay it separately.

Why do investors have to pay fees to fund houses?

Mutual funds, as previously stated, are managed by experts known as fund managers. Managing large investments on a daily basis necessitates extensive industry knowledge, topic understanding, and a great deal of passion. As a result, the AMC charges the investors a well-deserved fee, which is approved by the Securities and Exchange Board of India (SEBI).

The total expense ratio (TER) is the cost imposed by a mutual fund scheme to manage an investor’s investments on their behalf. Management fees, administrative expenditures, and distribution fees are the key components of the expense ratio, which is charged annually.

Tax on Systematic Investment Plan (SIP) Investment

Unlike lump sum investments, which are made all at once, SIP instalments are made over a period of time. While we may consider a one-year SIP to be a single investment. Each payment is treated as a new investment for tax purposes. As a result, each instalment’s holding period is determined.

Since they are classified as equity funds for tax reasons because their equity component exceeds 65 percent, the tax treatment stated for equity funds will also apply to balanced funds and arbitrage funds. In the case of debt funds, however, the SIP will continue to use the FIFO mechanism when selling SIP units. The main distinction is that holdings of less than three years are considered short term capital gains and are taxed at your highest rate. Any holding period of more than three years will be considered as long-term capital gains, which will be taxed at a lower rate of 10%. (or 20 percent with indexation benefits).

LIC Housing Finance

Motilal Oswal has a buy call on the stock of LIC Housing post its quarterly numbers. “LIC Housing Finance surprised positively on growth, spreads, and addressing capitalization issues in 4QFY21. However, asset quality surprised negatively. We await clarification on the same. Given its parentage, it has been able to raise debt capital at low rates, which should keep margin healthy in a highly competitive environment. The sharp pick-up in disbursements is encouraging. Valuations at 1x price to book value is attractive. We look to revise our estimates post the earnings call,” the brokerage has said.

The housing finance company stock was last trading at Rs 510, down almost 2% in trade, post quarterly numbers of the firm.

Lemon Tree Hotels

Lemon Tree Hotels is a midscale business and leisure hotel. Again, Motilal Oswal has a buy rating on the stock.

“Revenue fell 46% YoY to Rs 951 million (estimated Rs 889 million) in 4QFY21. ARR declined by 45% YoY (to Rs 2,498) and occupancy fell 170 basis points (to 59.3%). RevPAR fell 46% YoY to Rs 1,481. On a QoQ basis, RevPAR grew 38% on the back of a 17 pp improvement in occupancy rate, marginally offset by a 1% decline in ARR.

EBITDA fell 55% YoY to Rs 285 milion (estimates Rs 302 million; v/s Rs 201 million in 3QFY21). On a QoQ basis, revenue/EBITDA grew 39%/42%. Adjusted loss stood at Rs 168 million v/s a loss of Rs 179 million in FY20,” the brokerage firm said.

Following its results, the shares of Lemon Tree was trading at Rs 42.60, up nearly 2% in trade.

Whirlpool of India

Whirlpool of India is a stock Motilal Oswa has a buy, following a decent set of quarterly results.

“As the economy recovers from the lockdowns, operating leverage should aid margin normalization by FY23E to 11.4%. While topline growth has been at par with our coverage universe companies, the low base of FY21 should help in faster earnings growth as peers witness margin erosion from a high base of FY21. This should help the stock catch-up with its peers. To account for the second COVID wave, we cut our FY22E/23E EPS by 20%/4% and price target to Rs 2,900 (from Rs 3,020 earlier) based on unchanged target FY23E P/E of 55 times. Maintain Buy,” the brokerage has said.

The shares of Whirlpool of India were at Rs 2,340 down 0.50%.

Disclaimer

The above mentioned stocks have been picked from brokerage reports. The author, the brokerage or Greynium Information Technologies do not take any responsibility for losses that maybe incurred. The above article is for informational purposes only