I would like to know how capital gains from FMPs are taxed in the growth option. How much DDT is paid by a fund on the declared dividend? I am in the highest tax bracket, which option - growth or dividend - is better for me if I invest in a FMP of 366 days or more?
-Muzammil Ahmad
Fixed maturity plans (FMPs) don’t levy any securities transaction tax (STT). However, capital gains tax will be liable on the earnings from any FMP of 366 days or more. As far as dividend distribution tax (DDT) is concerned, FMPs have to pay that to the tune of 11.9 per cent.
The growth option of an FMP would be better for someone in the highest tax bracket, because gains that are over a year old will considered as capital gains and won't be added to your taxable income. Hence, your tax liability will be lesser if you go for the growth option.
This article was originally published on November 05, 2012.
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