In a major change that can have positive impact on Fund of Funds, the Ministry of Finance has decided to amend tax laws and allow categorisation of such funds into equity- or debt-oriented funds.
Once in place, the changes would benefit over 17 FoFs in India, as those falling under the equity-oriented category won't have to pay 12.5 per cent dividend distribution tax. At present, by default, all FoFs are treated as debt-oriented mutual funds and are thus required to pay the dividend distribution tax.
As per the prevailing tax laws, funds with more than 50 per cent of their assets invested in equities fall under the equity-oriented funds' category and are not required to pay any dividend distribution tax. Also, the dividend is tax free in the hands of the investors.
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