Does a mutual fund vehicle pay Short Term Capital Gains tax on trades that are less than 12 months. Please note I am not asking from the perspective of the unitholders - but rather the taxation inside the mutual fund account.
Given that mutual fund trades also pay STT - I would assume they are required to pay short term capital gains tax also on trades which they do that last less than 12 months irrespective if the unit holder holds the units for more than 12 months. Can anyone comment ?
I’m just thinking aloud here. Maybe someone with the exact information can share more insights.
Since MFs are pass through structure, they may enjoy a special status here and therefore no tax implication. All taxation concerned here is at the investors perspective and really depends on how long he or she holds the units. This makes sense to me because if MFs also pay tax and the investor also decides to redeem within a year, then there would be some sort of double taxation.
Under SEBI Regulations a mutual fund needs to established as a Trust. A mutual fund trust is exempt from tax on its income and earnings under section 10(23D) of the Income Tax Act. The returns of the mutual fund are passed through its investors, the returns are taxed in the hands of the investors.
Actually trusts are exempt from business income but short term gains are not as far as I understand. So not sure if its due to the trust nature of the SPV. Can anyone else please confirm ?
Found the answer:
"An Indian mutual fund registered with the SEBI, or schemes sponsored by specified public sector banks / financial institutions and approved by the Central Government or authorized by the RBI are tax exempt as per the provisions of section 10(23D) of the ITA. The mutual fund will receive all income without any deduction of tax at source under the provisions of Section 196(iv), of the ITA. " The source is Nishit Desai white paper here