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Changed Taxation of FMPs

Post Budget 2014, FMPs will not be eligible for double indexation benefits if redeemed between 1-3 years

How will the return from FMPs be treated now, after the budget? I had invested ₹50,000 in FMPs in March 2014 to take advantage of double indexation; how would the tax be calculated after implementation of new budget?
- Vihang Parikh

We are assuming that yours is a one-year plus FMP given that you mention double indexation benefits. The budget has extended the definition of 'short term' as it applies to debt mutual funds from 12 to 36 months. Thus, the FMP you hold will not be eligible for double indexation benefits if you redeem it anytime between 1 and 3 years from the date of investment. That is, the return you earn will be clubbed with your income and taxed at your income tax slab rate. It is only if you hold your FMP for 3 years that you will get indexation benefits on your capital gains. They will be taxed at 20 per cent after indexation. Now, it is likely that the fund house will offer you an option to extend or roll over the FMP. If you do not need the cash at that time you can take a decision to extend it.

The FM has clarified that while investments made between April 1 and July 10 will not be subject to the new tax, all older investments will be taxed as detailed below.

Taxation of Non-Equity Funds

Tenure of InvestmentExisting RateProposed Rate
Less than 1 yearsMarginal rate of tax applicable to investorMarginal rate of tax applicable to investor
1-3 yearslower of (10% flat or 20% after indexation)Marginal rate of tax applicable to investor
More than 3 yearslower of (10% flat or 20% after indexation)20% after indexation

For more go through the following link: https://www.valueresearchonline.com/story/h2_storyview.asp?str=25652



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