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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Taxation

For a resident individual investor, which of the following correctly describes the tax treatment of Securities Transaction Tax (STT) paid on redemption of equity-oriented mutual fund units?

STT paid on redemption of equity-oriented mutual fund units is not allowed as a deduction while computing capital gains. The gain is computed from sale value less cost of acquisition, and STT is ignored, so it neither reduces the gain nor can it be claimed as a rebate.

  1. ASTT paid is deductible from sale consideration while computing capital gains
  2. BSTT paid is not allowed as a deduction while computing capital gainsCorrect
  3. CSTT paid is allowed as a deduction only for short-term gains
  4. DSTT paid can be claimed as a rebate against total tax payable

Explanation

Under the Income-tax law, STT is not allowed as a deduction in computing capital gains on units. It is therefore ignored when working out the cost or expenses of transfer. The other options wrongly treat STT as a deductible expense or a tax rebate.

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