For the purpose of capital gains tax calculations, any investment above one year is construed as long-term and equity-oriented schemes are defined as those with an average equity exposure of more than 65% in a year. By that logic, many balanced schemes also qualify for exemption from paying long-term capital gains tax.
Ved Prakash Chaturvedi, MD at Tata Asset Management said, Equity fund investor now will have to pay tax on equity fund dividends which is a disappointment. He added that since the investors would have time (DTC will be implemented from the financial year 2012-13), it is likely to smoothen the impact. Suresh Soni, CEO of Deutsche Mutual Fund says, over the short-term it could affect investor sentiments but not over the long-term. It is however likely that dividend options might lose its sheen. Systematic Withdrawal Plans (SWPs) in a growth plan could work out better than dividend options on a post -tax basis over the long term said a financial planner on condition of anonymity.
As regards the short-term capital gains tax - gains made from investments within a year or less there is likely to be no impact. From April 1, 2012, it would be linked to the income tax slab rate of the investor. Today, a 15% tax is paid on short-term capital gains from investing in an equity product. Surcharge and education cess are additionally charged to that. From 2012, the short-term gains would be added to the overall income of the individual for calculation of tax. At the higher end, it works out to a similar tax rate of 15%, which is similar to the earlier tax rate. A senior executive of an institutional broking house said, Though prima facie it appears attractive for retail and other domestic investors, there is a possibility that investors will end up paying much more than what they are currently paying.