Esha AgrawalEsha Agrawal

Death, taxes and childbirth! There’s never any convenient time for any of them.

At first instance, readers might think it weird to use these three words namely, death, taxes and childbirth fit into one grid system of words together. But this is where commerce shows it spark. We commerce students acquire the ability to link things with each other and give a meaning to it.

So as far as these three words are concerned, i can say that they are interconnected. As death is dreaded by every individual, childbirth though it brings happiness but alongwith it comes new responsibilities. So people often try to postpone the two( exceptions are always there). Similarly tax payment is evaded by people. Although they can’t but again the loopholes come into play and give a way to the evaders.

So these three things never find a convenient time but time is great and nevertheless it finds its own convenient way and time to get the things done. So lets start with the

Tax Provisions on Income of Investment Funds and Income Received From such Fund

Investment Funds pool resources from the investors and invest in new companies, social ventures and other areas which government considers as socially or economically desirable.  Finance Act 2015 came with the concept of “Investment Funds”

Features of new Taxation Rules

  • Income from PGBP of Investment funds shall be taxable in hands of Investment funds.
  • Any income of investment funds other than under the head PGBP shall be exempt in hands of investment funds under sec 10(23FBA)
  • Any income of investment fund which is exempt under sec 10 e.g. dividend under sec 10(34) , Long term capita gains under sec 10(38) shall continue to exempt in the hands of investment fund
  • Loss of investment fund shall not be allocated to unit holders and shall be set off, carried forward and set off by investment fund.
  • If investment fund is a company, then no dividend distribution tax shall be levied under section 115-O on income distributed by it (i.e., dividend) to its unit holders.
  • Total income of investment fund shall be taxable at normal rates applicable to a firm/ company, in case Investment funds is a Firm/ Company.
  • If investment fund is not a Firm/company, then its income shall be taxable at Maximum Marginal Rate.
  • Investment Fund required to deduct TDS @ 10% on distribution made by it to its unit holders if such distribution is taxable in the hands of unit holders.

Let understand it with the help of an example:-

Income from other sources – Interest  200 Lakhs

Capital  gains                                             300 Lakhs

The above income are exempt in the hands of Investment funds. If investment funds distributes Rs 500 lakhs to unit holders , then Rs 500 lakhs is taxable in hands of unit holders. Investment fund has to deduct TDS @ 10 % on such distribution.

Suppose, there are 2 unit holders, then Rs 250 lakhs is taxable in hands of each unit holder.

So this is the treatment of  tax provisions on income of investment funds and income received from such fund

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September 2021