There has been doubt in the minds of distributors and investors about whether the cost of acquisition of mutual fund units would come down to the extent of stamp duty tax deduction for calculating capital gains tax in mutual funds.
Simply put, if your client invests Rs.1 crore in a liquid fund, the fund house will deduct Rs.500 and allocate units against the remaining amount i.e. Rs.99,99,500 . Now, many distributors and investors believe that the new cost of acquisition will be Rs.99,99,500 for the calculation of capital gains tax in mutual funds.
However, MF officials have clarified that that cost of acquisition of MF units will be inclusive of stamp duty tax for the calculation of capital gains tax. In the above example, the actual cost of acquisition for calculation of capital gains tax is Rs.1 crore. MF officials say that there is no mechanism to calculate capital gains tax after deducting the stamp duty amount from the cost of investments.
From July 1, 2020, the cost of investment in mutual funds has gone up for investors due to the incidence of double stamp duty taxation. Simply put, mutual fund investors will have bear the burden of stamp duty tax twice – at investor level (when he purchases MF units) and at portfolio level (when the fund manager executes transaction). While the first taxation will be levied upfront, it will be adjusted to scheme’s TER in the second instance.
MF officials say that introduction of stamp duty will affect short term investors because the stamp duty tax is levied at the time of issuance of units. However, if holding period is more, say 3 years, the impact will be miniscule, say officials.
