Section 10(34) of the Income Tax Act, 1961 provides exemption from income tax on income earned from units of a specified mutual fund. This provision was introduced to encourage investment in mutual funds and to provide tax benefits to the investors. In this blog, we will discuss the provisions of Section 10(34) of the Income Tax Act, 1961 in detail.
Introduction
Mutual funds have become a popular investment avenue in recent years. It is a professionally managed investment scheme where funds are pooled from multiple investors and invested in various securities such as stocks, bonds, and other assets. Mutual funds offer a diversified portfolio and are managed by expert fund managers who take investment decisions on behalf of the investors.
Section 10(34) of the Income Tax Act, 1961
Section 10(34) of the Income Tax Act, 1961 exempts income earned from units of a specified mutual fund from income tax. The exemption is available to both resident and non-resident investors. The term “specified mutual fund” refers to a mutual fund registered with the Securities and Exchange Board of India (SEBI) and specified by the Central Government.
Conditions for claiming exemption under Section 10(34)
To claim exemption under Section 10(34), the following conditions must be fulfilled:
- The mutual fund should be registered with SEBI as a mutual fund.
- The mutual fund should be specified by the Central Government.
- The income should be in the form of capital gains arising from the transfer of units of a specified mutual fund.
- The units should have been held for more than 12 months to be considered as long-term capital gains. Short-term capital gains are taxable as per the applicable tax rates.
- The mutual fund should be an equity-oriented fund. If the mutual fund is not an equity-oriented fund, the exemption under Section 10(34) will not be available.
Benefits of Section 10(34)
- Tax-free income: One of the primary benefits of Section 10(34) is that the income earned from units of a specified mutual fund is tax-free. This can help investors save a significant amount of tax.
- Encourages investment in mutual funds: The exemption under Section 10(34) encourages investment in mutual funds by providing tax benefits to investors. This can help investors generate higher returns on their investment.
Benefits of investing in mutual funds
Mutual funds offer several benefits to investors. Some of the key benefits of investing in mutual funds are:
- Diversification: Mutual funds invest in a diversified portfolio of securities such as stocks, bonds, and other assets. This helps to reduce the risk of loss and provides a higher level of stability to the portfolio.
- Professional management: Mutual funds are managed by expert fund managers who take investment decisions on behalf of the investors. This helps investors to benefit from the expertise of these fund managers and reduce the risk of making wrong investment decisions.
- Liquidity: Mutual funds are highly liquid investments, as investors can buy or sell units of the mutual fund on any working day. This provides investors with the flexibility to manage their investments as per their financial goals and requirements.
- Tax benefits: Mutual funds offer several tax benefits to investors. Apart from the exemption under Section 10(34), mutual funds also offer tax benefits under Section 80C and Section 80D of the Income Tax Act, 1961.
- Low cost: Mutual funds are a low-cost investment option compared to other investment avenues such as stocks or real estate. This is because the expenses of managing a mutual fund are shared among a large number of investors, reducing the cost per investor.
Conclusion
Section 10(34) of the Income Tax Act, 1961 provides exemption from income tax on income earned from units of a specified mutual fund. This provision encourages investment in mutual funds by providing tax benefits to investors. Mutual funds offer several benefits such as diversification, professional management, liquidity, tax benefits, and low cost. By investing in mutual funds, investors can generate higher returns on their investment and save a significant amount of tax. It is important to note that investors should carefully assess their investment goals and risk appetite before investing in mutual funds.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
What is Section 10(34) of the Income Tax Act, 1961?
Section 10(34) of the Income Tax Act, 1961 provides exemption from income tax on income earned from units of a specified mutual fund.
Who is eligible for exemption under Section 10(34)?
Both resident and non-resident investors are eligible for exemption under Section 10(34).
What is a specified mutual fund?
A specified mutual fund refers to a mutual fund registered with SEBI and specified by the Central Government.
What types of income are exempt under Section 10(34)?
Only income in the form of long-term capital gains arising from the transfer of units of an equity-oriented mutual fund are exempt under Section 10(34).
What is the holding period for units to be considered as long-term capital gains?
The units must be held for more than 12 months to be considered as long-term capital gains.
Are short-term capital gains exempt under Section 10(34)?
No, short-term capital gains are taxable as per the applicable tax rates.
Is there a limit to the amount of income that can be exempt under Section 10(34)?
No, there is no limit to the amount of income that can be exempt under Section 10(34).
Can an investor claim exemption under Section 10(34) for income earned from units of all mutual funds?
No, only income earned from units of a specified mutual fund is eligible for exemption under Section 10(34).
What are the tax benefits of investing in mutual funds?
Apart from the exemption under Section 10(34), mutual funds offer tax benefits under Section 80C and Section 80D of the Income Tax Act, 1961.
What are the benefits of investing in mutual funds?
Mutual funds offer several benefits such as diversification, professional management, liquidity, tax benefits, and low cost.
