InvestorQ : How the capital gains on a liquid fund are be treated. Will they come under Section 111A for such a classification?
Ria Jain made post

How the capital gains on a liquid fund are be treated. Will they come under Section 111A for such a classification?

Answer
image
Anu Biswas answered.
2 years ago
Follow

To understand this point better, let us take the case of Rahul who had invested in liquid funds. Rahul is a salaried employee in a software consultancy firm. In the month of December, 2017 he purchased 100 units of Temple Liquid Fund @ Rs. 100 per unit. These units were sold in August, 2018 @ Rs. 125 per unit. Can the capital gain be termed as STCG covered under section 111A?

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds or units of business trust, which were transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax.

In the given case the mutual fund is a liquid fund that invests predominantly in short term debt instruments like call money, treasury bills, CP, CD etc. This will be classified as a non-equity (debt) fund for the purpose of tax calculation. Hence, the provisions of section 111A are not applicable and such gain will be treated as normal STCG. In other words, STCG on sale of units of non-equity oriented mutual funds cannot be termed as STCG covered under section 111A. In this case, the STCG is normal and, hence, will be charged to normal tax rate depending on the total income of Rahul. In short, the liquid fund will be classified as a non-equity fund and will be added to your total income.

0 Views