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New Tax Code & Funds

Some confusion has been created on the applicability of tax

The proposed New Direct Tax Code 2009 says that ‘any income received in respect of the units of a mutual fund’ is ‘income not included in the Total Income’. Does this mean that if this tax code becomes applicable, all gains from mutual fund will be tax-free?
-    Anand H Bhagwat

Gains from mutual funds are divided into two parts: dividends and capital gains. Income in mutual funds refers only to the dividends distributed by mutual funds and does not include the capital gains.

Currently, all dividends from mutual funds are tax-free in the hands of investor. However, dividends from funds other than equity funds are subject to dividend distribution tax (DDT). This will continue to be so. The capital gains will, however, be added to a person’s income and taxed accordingly.

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