Taxation

NISM Series V-D | 3 marks | Official workbook pages 160-170

What this chapter is about

Build the tax decision tree for the scheme and investor: fund-level exemption, capital gains classification, income distribution, stamp duty, set-off, STT, TDS and GST.

Core concepts

• Income earned by a mutual fund scheme is generally exempt at the fund level under the framework described in the workbook; investors may still be taxed on distributions and gains.
• Investor tax depends on scheme category, asset composition, holding period, investor status and the law applicable on the transaction date.
• Capital gain or loss is computed from sale or redemption consideration after applying the permitted cost and adjustment rules.
• Income distribution is taxed in the investor's hands under the applicable provisions and may attract tax deduction at source.
• Stamp duty applies to issue or transfer of mutual fund units as prescribed. STT applies only to specified equity-oriented transactions.
• Capital losses may be set off and carried forward only according to the relevant income-tax rules.
• GST is relevant to services and distribution or management charges, not a blanket tax on the investor's capital gain.

Formula and calculation sheet

Capital gain = net sale or redemption consideration - eligible cost of acquisition and permitted adjustments.

Exam focus

• Separate tax paid by the scheme from tax paid by the investor.
• STT applies to specified equity-oriented scheme transactions, not all redemptions.
• Tax rates change. Use the March 2026 workbook tables for rates and holding-period thresholds.
• Classify scheme and transaction before calculating tax.

Quick revision - 60 second scan

• Identify scheme category.
• Identify holding period.
• Identify investor status.
• Then apply capital gains, TDS, STT, stamp duty and set-off rules.