Tax sword on MF deals thru stock exchanges

NEW DELHI: Buying and selling mutual funds units on recently-opened trading facility on stock exchanges will not come tax-free. While trading equity schemes would attract securities transaction tax, debt and liquid funds would face capital gains tax.

“Capital gains in respect of transfer of units of ‘equity-oriented mutual fund’ held for more than 12 months (long-term ) would not be levied income tax provided the transaction of transfer of unit is subject to STT,” said Vikas Vasal, partner, KPMG.

If the units are held for 12 months or less (short-term ) the same would be liable to tax at the rate of 15 per cent plus cess, he added.

However, trading of units of debt and liquid funds will not attract STT like other traded securities. They will be liable to capital gains tax as earlier, said an official in the income tax department.

Securities transaction tax (STT) is a transactions tax levied on sale and purchase of select financial assets such as shares and mutual funds. Retail transactions in shares are currently levied STT at 0.125 per cent of the total volume of the transaction

Markets experts, however, say that transacting through stock exchanges should not be treated as trading of units as the new facility was only an order routing system wherein the eventual transaction is still executed by the fund house.

Investors are not buying and selling mutual funds unit from each other through the stock exchange. “The online facility is only an order routing system,” said Dhirendra Kumar, CEO, Value Research. Some experts feel there is ambiguity over taxation of online trading of units of debt and liquid funds and a clarification may be needed from tax authorities to clear the air.

“Though, STT provisions explicitly mentions about taxation of equityoriented mutual funds, clarity is needed about taxation online traded debt and liquid fund units,” an official with a brokerage firm said.