Skip to main content

Debt Funds - Increase in Long Term Capital Gain Tax

 

Debt Funds - Hike in long-term capital gains

 

 





Hike in long-term capital gains, tax on non-equity funds to 20 percent and extending the holding period to three years will be a damper for debt funds

 

THE Budget comes as a mixed bag of blessings and disappointments for mutual fund investors. While the increase in tax exemption limit under Section 80C of the Income Tax Act will benefit equity fund investors, the changes in tax structure on debt funds may prove to be a drag on their finances. Here's how the maiden Budget presented by Finance Minister Arun Jaitley will affect the mutual fund investors.
DEBT FUNDS The individuals who invested in short-term debt funds and fixed maturity plans (FMPs) to earn better post-tax returns will have to pay more taxes now. The finance minister has proposed a hike in the long-term capital gains tax on debt mutual funds from 10 percent to 20 percent and has extended the holding period to 36 months from 12 months. Experts believe even gold fund investors will be affected by the proposal.

 

People in the higher tax bracket, who preferred mutual funds because of the 30 percent tax implication on the interest earned from bank fixed deposits, will be the worst hit. This makes investments in debt schemes, including FMPs, for less than 36 months, unattractive. The changes proposed in dividend distribution taxes (DDT) would also hurt debt investors.


The DDT was on the net dividend distributed. Now it will be based on the gross dividend distributed. She says investors will be taxed higher at 33.99 percent (including surcharge and cess) from 25.36 percent earlier. Investors should not, however, give up on debt funds entirely because of the new tax proposal.


Due to high inflation, even if you invest in debt funds with a three-year horizon, using the indexation method, your post-tax returns could be higher than those offered by bank fixed deposits.

Some experts feel investors should take a look at arbitrage funds as they can offer better post-tax returns. Arbitrage funds, as the name suggests, look for an arbitrage opportunity among different markets. They are treated as equity funds for taxation purposes, that is, investments held for over one year will not attract taxes. Investors with no risk appetite and an investment horizon between one and three years can consider investing in arbitrage funds.


ELSS The Budget proposal to increase the investment limit under Section 80C is good news for fans of tax-saving mutual fund schemes. The finance minister has raised the exemption limit from `1 lakh to `1.5 lakh under the Section, thereby , enhancing the tax-saving ability of small investors.


Effectively, it means that you can now enjoy a further `50,000 deduction on your total taxable income if you invest an equivalent amount in eligible Section 80C instruments. Individuals earning up to `4 lakh and making an investment of `1.5 lakh under Section 80C will be out of the tax net. The earlier limit was considered too low for investors to actually make optimum use of the available options.

For most individuals, the mandatory contributions towards Provident Fund and premiums towards life insurance policies ate up a chunk of the `1 lakh limit. Earlier, many investors had no reason to save further. However, the revised limit now provides more headroom for them to consider good investment avenues. Experts insist that the revised limit should be used to allocate more towards equities. your compulsory savings towards PF and insurance, investors should now make use of this enhanced limit to take exposure to a different asset class, such as equities."

A tax-saving equity fund or equity-linked savings scheme (ELSS), which falls under the Section 80C umbrella, is the best option to deploy the surplus savings. Investors should make the most of the additional investments of `50,000 allowed under Section 80C by picking up the right schemes. Not only will it help in saving tax, but also provide more scope for wealth creation over the long term. Besides, with a lock-in period of just three years, these products come with a shorter maturity period than most traditional savings instruments, including the Public Provident Fund, National Savings Certificates and tax-saving FDs. Says Rajesh Kothari, managing director, It is better to invest in equity for the long term compared with fixed income, both from the perspective of liquidity and tax saving.

RGESS Apart from ELSS, first-time equity investors looking to save taxes, in addition to Section 80C, can consider investing in the Rajiv Gandhi Equity Savings Scheme (RGESS). If you exhaust the `1.5 lakh limit, you can claim a further deduction of `25,000 on your taxable income by investing in it. Many investment experts were expecting the new government to give it a quiet burial, but nothing of the sort happened. RGESS continues to be intact and first-time investors can continue to invest and claim tax benefits. Those with a gross annual income of `12 lakh or less can invest up to `50,000 under Section 80CCG in the scheme every year, and claim tax benefits for a period of three years.


Investors have the option of buying stocks from the BSE-100, NSE CNX 100, Maharatnas or Navratnas or ETFs specified under the scheme. Experts say investors must avail of the entire `1.5 lakh limit under Section 80C and opt for ELSS if they want equity exposure. If you are inclined to save more tax, consider opting for RGESS, preferably through designated mutual funds and not through direct investment in shares.

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...
Read more

Liquidity Adjustment Facility

Liquidity adjustment facility (LAF) is a money market tool used by the central bank of a country (in India it is the Reserve Bank of India ), to infuse funds into the country's banking system when liquidity dries up. Again, in case there is excess liquidity, the central bank uses some tools to help banks manage their surplus liquidity. Usually the RBI uses the repurchase facility (called Repo ) to give short-term loans to banks to meet their temporary liquidity shortage. On the other, hand RBI uses reverse repo facility to help banks park their excess liquidity with it. Banks usually use various securities, which are approved by the RBI, as collateral when they take money from the RBI to meet their short term liquidity requirement     Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara...
Read more

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...
Read more

NRI from Canada and US Invest in Mutual Funds in India

Investing in Indian mutual funds by NRIs from US and Canada As of December 2016, eight Indian fund houses were accepting investments from US/Canada-based NRIs Most of the Indian mutual fund houses have stopped accepting funds from US and Canada based NRIs due to regulatory restrictions. This is because the Foreign Account Tax Compliance Act (FATCA) makes it compulsory for all financial institutions in the world to report comprehensive details of all transactions involving US/Canada residents, (including non-resident Indians) to the US & Canada Government. Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund
Read more

HDFC FOCUSED EQUITY FUND - PLAN A NFO

HDFC FOCUSED EQUITY FUND - PLAN A NFO opens today               Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed Call on 94 8300 8300 --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now