Finance Minister, Chidambaram, in the Union Budget 2013-14 said “Rajiv Gandhi Equity Savings Scheme (RGESS) will be liberalized. Income limit for RGESS increased to Rs 12 lakh from Rs 10 lakh.”
Further he added “RGESS is extended to mutual funds.” RGESS was introduced in the previous Union Budget to pull new investors towards equity markets.
First time investors in RGESS will have a tax relief for their investments for 3 years. It will certainly attract more investors in equity mutual funds
Security Transaction Tax (STT) Reduced
In order to attract the investors to the market, Finance Minister has reduced the STT on mutual fund / exchange traded fund (ETF) at fund counter from 0.25% to 0.001%. While mutual fund / ETF purchase or sale on exchanges have been reduced from 0.1% to 0.001%, only on the seller.
An ETF tracks an index, a commodity or a basket of assets like an index fund, but trades like equity on an exchange. The price changes throughout the day as they are bought and sold.
The Indian government has been trying to bring more retail participation in the markets. With STT being reduced, it will help boost investment sentiment in the country.
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STT Reduced on ETF’s |
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Current |
Revised |
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MF/ETF redemptions at fund counters |
0.25% |
0.001% |
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MF/ETF purchase/sale on exchanges |
0.1% |
0.001% |
Surcharge increase in DDT to Impact Debt Funds
There is no dividend distribution tax on equity mutual funds but the Debt and liquid funds declaring dividend has to pay dividend distribution tax (DDT) depending on the investor category.
Surcharge on DDT has been increased from 5% to 10%. This is applicable on persons (other than companies) whose taxable income exceed Rs 1 crore & domestic companies whose taxable income exceed Rs 10 crore.
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Surcharge increased on Dividend Distribution Tax |
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Current * |
Revised ** |
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Category |
Individuals & HUF |
Domestic Company |
Individuals & HUF |
Domestic Company |
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Liquid Funds |
25% + 5% surcharge + 3% cess = 27.0375% |
30% + 5% surcharge + 3% cess = 32.445% |
25% + 10% surcharge + 3% cess = 28.325% |
30% + 10% surcharge + 3% cess = 33.99% |
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Other Debt Funds |
12.5% + 5% surcharge + 3% cess = 13.51875% |
30% + 5% surcharge + 3% cess = 32.445% |
12.5% + 10% surcharge + 3% cess = 14.1625% |
30% + 10% surcharge + 3% cess = 33.99% |
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*5% surcharge is applicable when total income exceed Rs 1 crore **10% surcharge is applicable on persons (other than companies) whose taxable income exceed Rs 1 crore & domestic companies whose taxable income exceed Rs 10 crore |
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