I have invested in one of the 366 days FMP Plans. What would be my tax liability for this investment? I have come to know that the income from a MF is not taxable for individuals. Hence I invested in an FMP rather than a bank FD. I have opted for the growth option.
—Amit Shah
Your understanding is wrong, all kinds of income from a mutual fund is not tax free. Only long-term capital gains on equity oriented funds are tax free. Income of both the debt fund and FMP are taxable though their tax incidence is not the same. You are liable to pay tax on capital gain earned from investments in FMPs. Since it is a 366 days FMP, long-term capital gain tax will be charged at the rate of 10 per cent without indexation or 20 per cent with indexation, whichever will be lower. The indexation benefit makes FMPs an attractive investment avenue compared to fixed deposits. Since you have taken the growth option, no dividend distribution tax (DDT) will be imposed on you.
This article was originally published on August 27, 2008.
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