Buying and selling mutual funds units on the recently opened trading facility on stock exchanges will not be tax-free. While equity schemes would attract securities transaction tax, debt and liquid funds would face capital gains tax. Capital gains in respect of transfer of units of ‘equity-oriented mutual fund’ held for a period of more than 12 months (long-term) would not be liable to income tax provided the transfer of unit is subject to STT.  If the units are held for 12 months or less (short-term), the same would be liable to tax at the rate of 15% plus cess.

However, trading of units of debt and liquid funds will not attract STT like other traded securities. They will be liable to capital gains tax as earlier, said an official in the income tax department.

Securities transaction tax (STT) is a transactions tax levied on sale and purchase of select financial assets, such as shares and mutual funds. Retail transactions in shares are currently levied STT at 0.125% of the total traded volume.

Transacting through stock exchanges should not be treated as trading of units as the new facility was only an order routing system wherein the eventual transaction is still executed by the fund house. Investors are not buying and selling mutual funds unit from each other through the stock exchange.

Some experts feel there is ambiguity over taxation of online trading of units of debt and liquid funds and a clarification may be needed from tax authorities.

Though STT provisions explicitly mention about taxation of equity-oriented mutual funds, clarity is needed about taxation of online traded debt and liquid fund units.

A finance ministry official said they could look at the issue, if they receive any reference from traders, industry association, exchanges or the regulator.

National Stock Exchange (NSE) launched its mutual funds trading platform on Monday, while the Bombay Stock Exchange (BSE) unveiled it on Friday, following SEBI’s approval for transactions in MF schemes through the stock exchange infrastructure.

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0 responses to “STT is applicable on Mutual fund trading and profit is taxable too”

  1. ch says:

    is STT paid(deduction)applicable for all mutual fund investment over one year ?.(except ELSS)

  2. ch says:

    i was redeem the 527316/25 folio of fedility tax advantage fund on 15th april 2010. i found that the Rs.46/- is deducted under STT paid. what is the meaning of STT paid and why that money bear by investor.
    i was already paid the entry load at the time of investment on Feb 2006. there is no guideline to deduct money after the lock in period.
    there is no exit load after the lock in period(3 years) that printed on statement.
    please clarify that matter and guide me

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