An amount gifted to a relative will be free of income tax

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: and then reinvesting the same. Though the reinvestment takes place directly at the fund level, there are in fact two legs to the transaction. The first leg is the receipt of dividend, which will be subject to the dividend distribution tax. This is taken care of by the mutual fund at source. Hence the amount is tax-free in your hands. The net amount that you are entitled to receive gets reinvested at the ex-dividend NAV. To that extent, this second leg is akin to making a fresh investment on the applicable date and the applicable NAV. Capital gains are calculated in the usual course. The long-term or short-term nature of the same would depend on the period of investment. If the same is over one year, the gains are long-term, else they are short-term.

In the case of equity funds, the same principles will apply. However, in this case, the dividends do not suffer distribution tax. Also, short-term gains are taxed at 15%, whereas long-term gains are tax-free. However, the tax principle remains the same.

I had invested in a 5-year post office RD, which has matured and I received it in cash in my native place. Since I am not intending to go there immediately, I gave it to my father and asked him to open an FD for one year in his name.

1) Since the money has not been remitted into my bank account this year, should I be paying tax on this income this financial year?

2) Next year when I get the money from my father on maturity of FD, how will I show it in my returns? Will it be better to show it as a gift or as something else?

My father is retired and does not fall in the tax bracket

— Bindu M B

Whether you get the maturity in cash or by cheque, it is your income and tax is payable by you. It is your call if you wish to do so or not.