NISM Series V-A Chapter 8: Taxation Practice Questions

Question 1

For income tax purposes, what is the minimum percentage of equity exposure a mutual fund scheme must maintain to be classified as an 'equity-oriented fund'?

Accepted Answer

65%. As per the Income Tax Act, a mutual fund scheme is considered 'equity-oriented' if at least 65% of its investible funds are invested in equity shares of domestic companies. This threshold is specifically for taxation purposes and differs from SEBI's classification (e.g., 75% for diversified equity schemes) for scheme categories.

Question 2

Securities Transaction Tax (STT) is levied on which of the following transactions related to mutual funds?

Accepted Answer

Redemption or switch-out of units of equity-oriented mutual funds only.. Securities Transaction Tax (STT) is applicable only on transactions involving equity-oriented mutual funds. Specifically, it is levied only on the sale (redemption or switch-out) of units of equity-oriented mutual funds. It is not levied on the purchase of equity-oriented mutual funds, nor on any transactions (purchase or sale) of debt-oriented mutual funds.

Question 3

An NRI investor redeems units of an Indian equity-oriented mutual fund after holding them for 10 months. What will be the applicable TDS rate on the capital gains?

Accepted Answer

15%. For Non-Resident Indian (NRI) investors, Short Term Capital Gains (STCG) arising from the redemption of equity-oriented mutual fund units are subject to TDS at a rate of 15% (plus applicable surcharge and cess). This is as per Section 111A read with Section 195 of the Income Tax Act, 1961.

Question 4

What is the mandatory lock-in period for investments made in Equity Linked Savings Schemes (ELSS) to avail tax benefits under Section 80C of the Income Tax Act?

Accepted Answer

3 years. Equity Linked Savings Schemes (ELSS) have a mandatory lock-in period of 3 years from the date of investment for each unit purchased. This is the shortest lock-in period among most tax-saving instruments under Section 80C.

Question 5

For taxation purposes, how are capital gains from units of a Gold Exchange Traded Fund (ETF) treated?

Accepted Answer

Like debt-oriented funds, with LTCG taxed at 20% with indexation after 36 months.. Gold ETFs, Fund of Funds, and international funds are treated as non-equity oriented funds for capital gains taxation. Long Term Capital Gains (LTCG) arise if units are held for more than 36 months and are taxed at 20% with the benefit of indexation. Short Term Capital Gains (STCG) are taxed at the investor's marginal income tax slab rate.

Question 6

What is the minimum lock-in period for investments made in an Equity Linked Savings Scheme (ELSS) to avail tax benefits under Section 80C of the Income Tax Act?

Accepted Answer

3 years. Equity Linked Savings Schemes (ELSS) have a mandatory lock-in period of 3 years from the date of investment. This is the shortest lock-in period among all Section 80C investment options, allowing investors to avail tax benefits while investing in equity.

Question 7

What is the applicable Tax Deducted at Source (TDS) rate on short-term capital gains (STCG) arising from the redemption of an equity-oriented mutual fund by a Non-Resident Indian (NRI)?

Accepted Answer

15%. For Non-Resident Indians (NRIs), short-term capital gains (STCG) arising from the redemption of equity-oriented mutual funds are taxed at a special rate of 15% under Section 111A of the Income Tax Act, provided the transaction is subject to Securities Transaction Tax (STT). The TDS rate for such gains is also 15%.

Question 8

Which of the following transactions related to mutual funds attracts Securities Transaction Tax (STT)?

Accepted Answer

Sale of units of an equity-oriented mutual fund.. Securities Transaction Tax (STT) is applicable only on the sale of units of equity-oriented mutual funds at the rate of 0.001% of the transaction value. It is not applicable on purchase transactions or on debt-oriented funds.

Question 9

An investor incurs a Long-Term Capital Loss (LTCL) from the sale of units of a debt-oriented mutual fund. Against which of the following income types can this LTCL be legally set off in the same assessment year, as per current income tax regulations?

Accepted Answer

Only against Long-Term Capital Gains (LTCG) from any capital asset.. As per the Income Tax Act, a Long-Term Capital Loss (LTCL) can only be set off against a Long-Term Capital Gain (LTCG). It cannot be set off against Short-Term Capital Gains or any other head of income. If not fully set off, it can be carried forward for up to 8 subsequent assessment years. (Section 74 of the Income Tax Act).

Question 10

An NRI investor redeems units from an equity-oriented mutual fund after holding them for 10 months, resulting in a capital gain of ₹2,00,000. Which of the following statements regarding TDS is correct, assuming no specific DTAA provision overrides?

Accepted Answer

TDS will be deducted at 15% on the entire ₹2,00,000 capital gain.. For an NRI, short-term capital gains (STCG) from the sale of equity-oriented mutual fund units (held for 12 months or less) are taxed at a flat rate of 15% plus applicable surcharge and cess, irrespective of the investor's slab rate. Tax Deducted at Source (TDS) is applicable for NRIs on such capital gains, and there is no basic exemption limit benefit for TDS purposes on these specific gains. Therefore, TDS will be deducted at 15% on the entire ₹2,00,000 capital gain.

Question 11

For an investor in a non-equity oriented mutual fund, what is the minimum holding period required for the capital gains to be classified as 'long-term capital gains' and thus be eligible for indexation benefit?

Accepted Answer

More than 36 months.. For non-equity oriented mutual funds (e.g., debt funds, gold funds, fund of funds), units must be held for a period of more than 36 months (i.e., greater than 3 years) for the capital gains to be classified as Long-Term Capital Gains (LTCG). Only LTCG from such funds are eligible for indexation benefit. (Section 2(42A) and Section 112 of the Income Tax Act).

Question 12

A mutual fund scheme invests predominantly in an international equity ETF. How would the capital gains from redeeming units of this Indian FoF scheme be typically taxed for a resident individual?

Accepted Answer

As short-term capital gains if held for less than 36 months, and long-term capital gains with indexation if held for more than 36 months.. As per the Income Tax Act, 1961, mutual funds investing predominantly in foreign equities are not considered 'equity-oriented funds' for tax purposes in India, even if their underlying investments are in equity. Hence, they are treated similar to debt funds. Capital gains are short-term if units are held for 36 months or less and taxed at the investor's applicable slab rates. If held for more than 36 months, they are long-term capital gains, taxed at 20% with indexation benefit.

Question 13

An investor purchased 1,000 units of an equity-oriented mutual fund on January 15, 2017, at an NAV of Rs. 100. The Fair Market Value (FMV) of these units on January 31, 2018, was Rs. 120. The investor redeems all units on March 1, 2023, at an NAV of Rs. 150. What will be the cost of acquisition per unit for calculating Long Term Capital Gain (LTCG) under Section 112A?

Accepted Answer

Rs. 120 (FMV as on Jan 31, 2018).. For equity-oriented mutual fund units acquired before January 31, 2018, and sold after this date, the cost of acquisition for calculating LTCG under Section 112A (grandfathering rule) is determined as the higher of: (1) The actual cost of acquisition (Rs. 100) and (2) The lower of (i) Fair Market Value (FMV) on January 31, 2018 (Rs. 120) or (ii) Actual Sale Consideration (Rs. 150). 
Applying this: Lower of (FMV Rs. 120 or Sale Consideration Rs. 150) = Rs. 120. 
Then, Higher of (Actual Cost Rs. 100 or Rs. 120) = Rs. 120. 
Therefore, the cost of acquisition per unit is Rs. 120.

Question 14

For taxation purposes, a mutual fund scheme is classified as an 'equity-oriented fund' if it invests a minimum of what percentage of its investible funds in equity shares of domestic companies?

Accepted Answer

65%. As per income tax regulations, an equity-oriented mutual fund is defined as a fund that invests at least 65% of its investible funds in equity shares of domestic companies. This classification is crucial for determining the applicable capital gains tax rates.

Question 15

What is the applicable Tax Deducted at Source (TDS) rate on dividend income distributed by a debt mutual fund to a resident individual, if the aggregate dividend income exceeds INR 5,000 in a financial year?

Accepted Answer

10%. For resident individuals, if the dividend income from a debt mutual fund exceeds INR 5,000 in a financial year, the fund house is required to deduct TDS at the rate of 10% under Section 194K of the Income Tax Act.

Question 16

Under which of the following scenarios is Securities Transaction Tax (STT) typically levied on mutual fund transactions?

Accepted Answer

Sale of units of an equity-oriented fund on a recognized stock exchange.. Securities Transaction Tax (STT) is levied only on the sale of equity-oriented mutual fund units through a recognized stock exchange. It is not applicable to purchases of any fund, or on redemptions of debt funds, or on direct redemptions of equity funds with the AMC. Gold ETFs are treated as non-equity-oriented funds for tax purposes and do not attract STT.

Question 17

On which of the following transactions in mutual funds is Securities Transaction Tax (STT) levied?

Accepted Answer

Redemption of equity-oriented mutual fund units.. Securities Transaction Tax (STT) is levied only on the redemption of units of equity-oriented mutual funds. It is not levied on the purchase of any mutual fund units, nor on debt-oriented mutual funds.

Question 18

An investor purchased 100 units of an equity-oriented mutual fund on December 15, 2017, at an NAV of ₹45 per unit. The NAV of the fund on January 31, 2018, was ₹60 per unit. The investor sold all units on April 10, 2023, at an NAV of ₹75 per unit. Ignoring STT, what is the total Long Term Capital Gain (LTCG) for the investor?

Accepted Answer

₹1,500. As per Section 112A of the Income Tax Act, for equity-oriented funds sold after April 1, 2018, if units were acquired before February 1, 2018, the cost of acquisition for LTCG calculation is the higher of: (i) actual cost of acquisition, and (ii) Fair Market Value (FMV) as on January 31, 2018 (NAV in this case), limited to the sale price.
In this case:
Actual Cost = ₹45
NAV on Jan 31, 2018 = ₹60
Sale Price = ₹75
The cost for LTCG calculation will be ₹60 (higher of ₹45 and ₹60). 
LTCG per unit = Sale Price - Grandfathered Cost = ₹75 - ₹60 = ₹15.
Total LTCG = ₹15 * 100 units = ₹1,500. (LTCG up to ₹1 lakh in a financial year is exempt under Section 112A, but the question asks for the total capital gain, not the taxable amount after exemption).

Question 19

A Balanced Advantage Fund (BAF) dynamically manages its equity allocation, which can fluctuate between 35% and 80%. For taxation purposes, such a fund is treated as an equity-oriented fund if its:

Accepted Answer

Average gross equity asset allocation during the financial year is 65% or more.. For a mutual fund to be classified and taxed as an equity-oriented fund, its average gross equity asset allocation during the financial year must be 65% or more of its total assets. If the average equity allocation falls below 65%, it will be treated as a debt-oriented fund for taxation purposes, irrespective of its dynamic nature or SID statements.

Question 20

An investor purchased units of a debt-oriented mutual fund on May 15, 2023, and redeemed them on June 20, 2024. The fund's portfolio consistently maintained less than 35% exposure to domestic equities. What will be the tax treatment of the capital gains arising from this redemption?

Accepted Answer

Short-term capital gains taxed at the investor's applicable income tax slab rate.. As per the Finance Act 2023, for mutual fund units purchased on or after April 1, 2023, where less than 35% of the gross corpus is invested in equity shares of domestic companies (which includes most debt-oriented funds, gold funds, FoFs investing in international funds, etc.), any capital gains arising from their transfer (sale/redemption) are treated as short-term capital gains (STCG) regardless of the holding period. These STCGs are taxed at the investor's applicable income tax slab rate, and the indexation benefit is no longer available for such units.

Question 21

An investor has a Long-Term Capital Loss (LTCL) of Rs. 60,000 from an equity mutual fund and a Short-Term Capital Loss (STCL) of Rs. 40,000 from a debt mutual fund in the current financial year. They also have a Long-Term Capital Gain (LTCG) of Rs. 50,000 from sale of property and a Short-Term Capital Gain (STCG) of Rs. 70,000 from sale of shares. Which of the following statements regarding set-off of these losses is correct?

Accepted Answer

The STCL of Rs. 40,000 can be fully set off against the STCG of Rs. 70,000. The LTCL of Rs. 60,000 can be fully set off against the LTCG of Rs. 50,000, with the remaining Rs. 10,000 LTCL being carried forward.. As per the Income Tax Act, 1961: Short-Term Capital Loss (STCL) can be set off against both Short-Term Capital Gain (STCG) and Long-Term Capital Gain (LTCG). Long-Term Capital Loss (LTCL) can only be set off against Long-Term Capital Gain (LTCG); it cannot be set off against STCG. In this scenario: 1. STCL of Rs. 40,000 can be fully set off against STCG of Rs. 70,000, leaving a remaining STCG of Rs. 30,000. 2. LTCL of Rs. 60,000 can only be set off against LTCG of Rs. 50,000. This leaves an unadjusted LTCL of Rs. 10,000 (Rs. 60,000 - Rs. 50,000), which cannot be set off against STCG and must be carried forward to subsequent years (up to 8 assessment years) to be set off against future LTCG.

Question 22

An investor purchased units of an equity-oriented mutual fund on January 1, 2017, for ₹50,000. The Net Asset Value (NAV) of the fund on January 31, 2018, was ₹65,000. The investor sold these units on March 1, 2023, for ₹80,000. What would be the amount of taxable long-term capital gain, considering the grandfathering provision? (Assume no other investments and ignore surcharge/cess).

Accepted Answer

₹15,000. According to the grandfathering provision for Long Term Capital Gains (LTCG) on equity-oriented funds, for units purchased before February 1, 2018, the cost of acquisition is considered to be the higher of: (1) Actual cost of acquisition (₹50,000) and (2) Fair Market Value (FMV) as on January 31, 2018 (NAV on Jan 31, 2018 is ₹65,000), but not exceeding the sale consideration. In this case, the higher of the actual cost (₹50,000) and FMV on Jan 31, 2018 (₹65,000) is ₹65,000. This becomes the deemed cost of acquisition. LTCG = Sale Price - Deemed Cost of Acquisition = ₹80,000 - ₹65,000 = ₹15,000. This gain would be taxable at 10% as it is long-term and within the ₹1 lakh exemption limit for LTCG on equity funds.

Question 23

What is the minimum lock-in period for investments made in Equity Linked Savings Schemes (ELSS) to avail tax benefits under Section 80C of the Income Tax Act, 1961?

Accepted Answer

3 years. Equity Linked Savings Schemes (ELSS) have a mandatory lock-in period of 3 years from the date of investment for each unit, to qualify for tax deduction benefits under Section 80C of the Income Tax Act, 1961. This is the shortest lock-in period among all Section 80C investment options.

Question 24

An investor invests in a Gold Exchange Traded Fund (ETF) and redeems it after 20 months. How will the capital gains arising from this redemption be taxed?

Accepted Answer

As Short Term Capital Gains (STCG) as per the investor's income tax slab.. Gold ETFs are treated as non-equity oriented funds for taxation purposes. Since the holding period is less than 36 months (20 months), the gains are classified as Short Term Capital Gains (STCG) and are taxed as per the investor's applicable income tax slab rate.

Question 25

What is the mandatory lock-in period for investments made in Equity Linked Savings Schemes (ELSS)?

Accepted Answer

3 years. Equity Linked Savings Schemes (ELSS) come with a mandatory lock-in period of 3 years from the date of investment. This is the shortest lock-in period among all Section 80C tax-saving instruments.

Question 26

Securities Transaction Tax (STT) is levied on which of the following transactions related to mutual funds?

Accepted Answer

Sale of units of an equity-oriented mutual fund.. STT is levied only on the sale of units of equity-oriented mutual funds. It is not applicable on purchase transactions or on units of debt funds, Gold ETFs, or Fund of Funds.

Question 27

What is the mandatory lock-in period for investments made in an Equity Linked Savings Scheme (ELSS)?

Accepted Answer

3 years. Equity Linked Savings Schemes (ELSS) have a mandatory lock-in period of 3 years from the date of investment. This is the shortest lock-in period among all tax-saving instruments eligible for deduction under Section 80C of the Income Tax Act.

Question 28

A mutual fund scheme that primarily invests in units of an overseas equity-oriented mutual fund is treated as what for Indian income tax purposes?

Accepted Answer

A non-equity oriented fund (debt fund), regardless of the underlying overseas fund's asset allocation.. For Indian income tax purposes, a Fund of Funds (FoF) that invests in overseas funds (even if the underlying overseas fund is equity-oriented) is treated as a non-equity oriented fund (i.e., a debt fund). This means capital gains are taxed as per debt fund rules: Short-Term Capital Gains (STCG) at slab rates, and Long-Term Capital Gains (LTCG) at 20% with indexation benefit (if held for more than 36 months).

Question 29

What is the applicable Tax Deducted at Source (TDS) rate on Long Term Capital Gains (LTCG) for a Non-Resident Indian (NRI) investor arising from the redemption of units of a non-equity oriented mutual fund?

Accepted Answer

20% (with indexation). As per income tax provisions, for a Non-Resident Indian (NRI), Long Term Capital Gains (LTCG) arising from the redemption of units of a non-equity oriented mutual fund are subject to TDS at 20% with the benefit of indexation.

Question 30

A resident individual invests in a domestic Fund of Funds (FoF) that primarily invests in units of an overseas equity ETF. How would long-term capital gains (LTCG) from the redemption of this FoF be taxed?

Accepted Answer

20% with indexation if held for more than 3 years. Fund of Funds (FoFs) are generally treated as non-equity oriented funds for taxation purposes, irrespective of their underlying investments, unless they directly invest at least 65% in Indian listed equities. Since this FoF invests in an overseas equity ETF, it is considered a non-equity oriented fund. For non-equity funds, long-term capital gains (LTCG) are realized if units are held for more than 36 months (3 years) and are taxed at 20% after availing the benefit of indexation.

Question 31

How are dividends received from a debt-oriented mutual fund taxed in the hands of a resident individual investor in India?

Accepted Answer

Taxable as 'Income from Other Sources' as per the investor's applicable income tax slab.. As per the changes introduced in the Union Budget 2020, effective from April 1, 2020, the Dividend Distribution Tax (DDT) on mutual funds was abolished. Consequently, dividends received from all mutual funds (including debt-oriented funds) are now taxable in the hands of the investor as 'Income from Other Sources' and are added to their total income, taxed at their applicable slab rates.

Question 32

An investor redeems units of a Gold ETF Fund of Funds after holding them for 30 months. Assuming the investor falls in the 30% income tax bracket, how would the capital gains from this redemption typically be taxed?

Accepted Answer

As income clubbed with other income and taxed at the investor's marginal tax rate.. As per the Finance Act 2023, effective April 1, 2023, capital gains from 'specified mutual funds' (those investing not more than 35% in equity shares of domestic companies) are taxed as short-term capital gains and are taxable at the investor's marginal income tax rate, irrespective of the holding period. Gold ETF Fund of Funds typically fall into this category. Indexation benefit is no longer available for these funds for investments made on or after April 1, 2023.

Question 33

An investor redeems units of a Fund of Funds (FoF) that primarily invests in an international equity ETF, after holding them for 20 months. What will be the tax treatment for the capital gains?

Accepted Answer

Short Term Capital Gain, taxable as per the investor's applicable income slab rate.. Fund of Funds (FoFs) that invest in international equities are treated as non-equity oriented funds for taxation purposes, irrespective of their underlying asset class. For non-equity oriented funds, capital gains on units held for 36 months or less are considered Short Term Capital Gains (STCG) and are taxable as per the investor's applicable income tax slab rate. Since the holding period is 20 months (less than 36 months), it will be treated as STCG.

Question 34

As per income tax provisions, a mutual fund scheme is classified as an 'equity-oriented fund' if it invests a minimum of what percentage of its total proceeds in equity shares of domestic companies?

Accepted Answer

65%. For income tax purposes, a mutual fund scheme is considered 'equity-oriented' if it invests a minimum of 65% of its total proceeds in equity shares of domestic companies. This classification determines the applicable capital gains tax rates (e.g., STCG at 15%, LTCG at 10% over ₹1 lakh).

Question 35

As per the current income tax provisions (post-Budget 2020), how is dividend income received by an individual investor from an Indian mutual fund taxed?

Accepted Answer

It is taxable in the hands of the investor at their applicable income tax slab rates.. With effect from April 1, 2020 (FY 2020-21 onwards), Dividend Distribution Tax (DDT) on mutual fund dividends was abolished. Consequently, dividend income from mutual funds is now fully taxable in the hands of the investor at their respective income tax slab rates, similar to other income sources.

Question 36

An investor invests in a domestic Fund of Funds (FoF) scheme whose underlying portfolio consists entirely of units of an Equity Linked Savings Scheme (ELSS). For capital gains taxation purposes, how will the FoF scheme be primarily treated?

Accepted Answer

As a debt-oriented fund, as FoFs are generally treated as non-equity funds for tax purposes.. For taxation purposes, Fund of Funds (FoFs) are generally treated as non-equity (debt-oriented) funds, irrespective of the underlying asset class they invest in. This is because they invest in units of other mutual fund schemes, not directly in equity shares. Therefore, capital gains from the redemption of FoF units will be taxed as per debt fund taxation rules (LTCG after 36 months with indexation, STCG at slab rates). The ELSS status of the underlying fund does not pass through for the FoF's own taxation classification.

Question 37

An investor invests ₹2,00,000 in an Equity Linked Savings Scheme (ELSS) fund. What is the maximum deduction allowed under Section 80C for this investment, and what is the mandatory lock-in period for these units?

Accepted Answer

₹1,50,000 deduction, 3 years lock-in.. Investments in ELSS qualify for a deduction under Section 80C of the Income Tax Act, 1961, up to a maximum limit of ₹1,50,000 in a financial year. The units purchased under ELSS have a mandatory lock-in period of 3 years from the date of investment, which is the shortest lock-in period among all Section 80C instruments.

Question 38

After the Finance Act 2020, dividend income received from mutual funds is taxable in the hands of the unitholder. For a resident individual unitholder, what is the current threshold for Tax Deducted at Source (TDS) on such dividend income?

Accepted Answer

TDS is applicable at 10% if the dividend income exceeds ₹5,000 in a financial year.. As per the Income Tax Act, after the Finance Act 2020, dividend income from mutual funds is taxable in the hands of the unitholder. For resident individuals, TDS is applicable at 10% if the aggregate dividend income from a mutual fund house exceeds ₹5,000 in a financial year. (Section 194 of the Income Tax Act).

Question 39

For an individual investor, how are dividends received from a debt-oriented mutual fund taxed in India for assessment year 2021-22 onwards?

Accepted Answer

Taxed as per the investor's applicable income tax slab rate. Effective from Assessment Year 2021-22 (financial year 2020-21) onwards, the Dividend Distribution Tax (DDT) has been abolished. Consequently, dividends received from mutual funds, whether equity or debt-oriented, are now taxable in the hands of the investor as 'Income from Other Sources' and are taxed as per their applicable income tax slab rate.

Question 40

Which of the following mutual fund categories is subject to Securities Transaction Tax (STT) on redemption proceeds?

Accepted Answer

Equity-oriented funds (with average equity allocation >= 65%). Securities Transaction Tax (STT) is applicable only on the redemption of units of equity-oriented mutual funds (funds with at least 65% average equity allocation) and on sale of equity shares on a recognized stock exchange. Debt funds, Gold ETFs, and FoFs investing in equity funds (which are treated as non-equity for tax purposes if not directly holding equity) are not subject to STT on redemption.

Question 41

An investor redeems units of a domestic Fund of Funds (FoF) which primarily invests in other domestic equity-oriented mutual funds. For capital gains purposes, this FoF is classified as an equity-oriented fund. Will Securities Transaction Tax (STT) be applicable on this redemption?

Accepted Answer

Yes, because the FoF is classified as an equity-oriented fund for taxation purposes.. Securities Transaction Tax (STT) is levied on the redemption of units of equity-oriented mutual funds. An FoF is classified as equity-oriented if it invests more than 65% of its average total assets in equity shares of domestic companies. If an FoF meets this criterion and is classified as an equity-oriented fund for capital gains purposes, then STT will be applicable on its redemption, similar to any other equity-oriented mutual fund.

Question 42

For a resident individual investor, how are dividends received from mutual funds taxed after April 1, 2020?

Accepted Answer

Taxable as 'Income from Other Sources' at the investor's applicable slab rates.. With effect from April 1, 2020 (Assessment Year 2021-22), Dividend Distribution Tax (DDT) was abolished. Dividends received from mutual funds are now taxable in the hands of the investor as 'Income from Other Sources' at their respective income tax slab rates, as per the Income Tax Act.

Question 43

Under which of the following scenarios is a Mutual Fund mandated to deduct Tax Deducted at Source (TDS) for a resident individual investor?

Accepted Answer

On dividend income exceeding ₹5,000 in a financial year from any mutual fund scheme.. As per Section 194K of the Income Tax Act, a mutual fund is required to deduct TDS @10% on dividend income exceeding ₹5,000 in a financial year for resident individuals. TDS is generally not applicable on capital gains for resident individuals from mutual funds.

Question 44

Mr. Sharma redeemed his Gold ETF units after holding them for 40 months. What will be the tax treatment for his capital gains?

Accepted Answer

Long Term Capital Gain, taxable at 20% with indexation benefit.. Gold ETFs are treated as non-equity oriented funds for taxation purposes. Hence, capital gains on units held for more than 36 months are considered Long Term Capital Gains (LTCG) and are taxable at 20% with the benefit of indexation, as per the Income Tax Act.

Question 45

An NRI investor redeems units of a debt-oriented mutual fund after holding them for 24 months. What would be the applicable TDS rate on the capital gains for this investor?

Accepted Answer

30% plus applicable surcharge and cess. For debt-oriented mutual funds, a holding period of 24 months results in Short-Term Capital Gains (STCG). For Non-Resident Indian (NRI) investors, STCG from non-equity mutual funds is subject to a TDS rate of 30% plus applicable surcharge and cess, as per the Income Tax Act.

Question 46

Which of the following statements is true regarding the lock-in period for Equity Linked Savings Scheme (ELSS) funds?

Accepted Answer

The lock-in period is 3 years from the date of investment, and redemptions can be made on a FIFO (First-In, First-Out) basis.. ELSS funds have a statutory lock-in period of 3 years from the date of allotment of units. This lock-in applies to each purchase separately. When units are purchased at different times (e.g., through an SIP), each instalment has its own 3-year lock-in. Redemption is allowed on a First-In, First-Out (FIFO) basis, meaning the units that completed their 3-year lock-in period first are eligible for redemption first.

Question 47

Securities Transaction Tax (STT) is a direct tax levied on specific transactions. In the context of mutual funds, on which of the following transactions is STT applicable?

Accepted Answer

On the redemption of units of an equity-oriented mutual fund.. Securities Transaction Tax (STT) is levied on the sale (which includes redemption) of units of equity-oriented mutual funds. It is not applicable on the purchase of units, nor on any transactions involving debt-oriented mutual funds. (Section 98 of the Finance (No. 2) Act, 2004).

Question 48

Which of the following transactions in mutual funds is subject to Securities Transaction Tax (STT)?

Accepted Answer

Redemption of units of an equity-oriented mutual fund.. Securities Transaction Tax (STT) is levied on the sale (redemption or switch-out) of units of an equity-oriented mutual fund. It is not applicable on the purchase of mutual fund units or on transactions involving debt-oriented mutual funds.

Question 49

For a resident individual investor, how is dividend income received from an equity-oriented mutual fund scheme taxed in the current financial year (post-FY 2020-21)?

Accepted Answer

It is added to the investor's total income and taxed as 'Income from Other Sources' as per applicable slab rates.. As per the Union Budget 2020, Dividend Distribution Tax (DDT) on mutual funds was abolished. Consequently, dividend income received from mutual fund schemes (both equity and debt) is now taxable in the hands of the investor. It is added to the investor's total income and taxed under the head 'Income from Other Sources' as per the individual's applicable income tax slab rates.

Question 50

For Non-Resident Indian (NRI) investors, what is the general TDS (Tax Deducted at Source) rate on long-term capital gains from the sale of equity-oriented mutual fund units where STT has been paid?

Accepted Answer

10% (without surcharge and cess) on gains exceeding ₹1 lakh.. For Non-Resident Indian (NRI) investors, long-term capital gains (LTCG) arising from the sale of equity-oriented mutual fund units where Securities Transaction Tax (STT) has been paid are taxable at 10% on gains exceeding ₹1 lakh, as per Section 112A of the Income Tax Act, 1961. Tax Deducted at Source (TDS) provisions apply to such gains for NRIs at this rate.

Ch.8: Taxation

What You Will Learn in This Chapter

Multiple Choice Questions (80)

Most candidates guess their way through V-A.
BullWiser makes you prove it.

Ch.8: Taxation

What You Will Learn in This Chapter

Multiple Choice Questions (80)

Most candidates guess their way through V-A.BullWiser makes you prove it.

Most candidates guess their way through V-A.
BullWiser makes you prove it.