Dividend tax & STCG on debt MF redemptions?

POSTED BY Grish S ON June 17, 2012 8:30 pm COMMENTS (3)

Suppose i invest in a dividend option of debt mutual funds (non-liquid) & after 1 month or 2 months, i redeem it, should i pay short term capital gains on the proceeds OR does it not apply for dividend options.

I heard from on of my frnd working for a MF company that there is no need to pay any taxes on the redemptions of a debt mutual fund (non-liquid) witin 12 months.

B4 that, i was thinking only dividends are tax free in the hands of the investor, never knew that redemptions in dividend schemes are also tax free in my hands.

So could you ppl confirm it?

3 replies on this article “Dividend tax & STCG on debt MF redemptions?”

  1. BanyanFA says:

    Hi Girish,
    1. Any dividend credited in your bank would be tax free;
    2. Generally from the time dividend is paid to the time next dividend is paid, the NAV of the fund tends to accrue the dividend payable. If you sell any where between these two dates, you don’t get dividend, but a STCG (if within 1 year) which gets taxed as per your tax slab. Hence, the best option is to go for weekly dividend option in case you want to completely get away with STCG.

    Hopefully it answers your query.


    1. Grish S says:

      i was concerned abt this since my frnd working in a mutual fund company told me redemptions made within 1 year in a non-liquid debt MF does not attract STCG but rather the MF would deduct DDT & give me the proceeds.

      So even if i invest in a dividend option of a non-liquid debt MF & redeem it after 3 months, I will have to pay STCG on the profit as per my tax slab.

      Then there is no use in parking my surplus funds in current account into a debt mutual fund for 1-3 months since i will have to pay 30% (my tax slab) on whatever gains i make in that fund.But many financial planners suggest to invest those current account funds in debt MF (liquid & short term funds)

      pls guide me.Am i thinking correctly or missing something.

  2. Dear Girish, the info provided to you is wrong. If you are redeeming from a Div. option & if there is any STCG the same ‘ll be taxed at your slab rate.



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