When I redeem my mutual fund units, how do I know if tax has been deducted on it already?
—Anchal Dhawan
If you are a resident Indian ((that is, not a non-resident Indian or NRI), then the only situation where a mutual fund company deducts tax is when it pays out dividends. This tax, called dividend distribution tax (DDT), is deducted before dividends are paid, making the dividends tax-free in your hands. When you redeem units, you would only be liable for capital gains tax, short- or long-term. These gains are to be reported and taxes paid in your tax returns. The company will not deduct this tax from your redemption amount or pay this tax on your behalf. Only in the case of NRI investors, the company deducts tax (TDS) for redemptions.
I had invested in Taurus Ultra Short Term Bond Fund. Following the news of default, I exited in July 2017. Taurus has created a Taurus Bilt Recovery-Ultra Short Term Bond Fund and added units of that in my folio and has been making payments as dividend against the units. But these payments are not shown as dividends in statements. Karvy’s capital gains statement also doesn’t mention these. How do I show these payments in my tax returns?
—Arun Gupta
During February/March of last year (2017), a few debt schemes of Taurus Mutual Fund incurred losses due to default of one of the companies in their debt portfolio (simply put, these schemes had lent to this company and were not getting their money back on schedule). This did not mean, however, that the unpaid money was completely gone—it was simply not paid out on schedule, forcing these schemes to mark them as losses on paper, which affected the net asset value (NAV) of the schemes. Many investors lost trust in these schemes at that point and exited by redeeming the units. But since you had units during the time the default occurred, the asset management company (AMC) is doing the right thing by repaying you from the recovery proceeds from this default. So far, so good—the investors had no further exposure to the schemes, and they were getting their money in due time.
The problem you have is one of reporting—the units created in the place-holder scheme are zero-cost units and in due time will be considered as capital gains. The dividends paid out would have had DDT deducted (as for all debt schemes) and should be tax-free in your hands. The problem is that you have no proof that this is how the money came to your account. The AMC and its R&T should issue a special statement for this purpose to such investors to account for bank account credits. I urge you to call the AMC and demand such a statement so that you can file your taxes with all due paperwork.
Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com
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