CS Executive · Tax Laws and Practice · Capital Gains
Under section 198 of the Income-tax Act, 2025, a mutual fund scheme that invests through another fund traded on a recognised stock exchange qualifies as an equity oriented fund only if which condition is met?
The fund must invest at least 90% of its proceeds in units of the other exchange-traded fund, and that other fund must invest at least 90% in equity shares of listed domestic companies. The 65% threshold applies only to direct investment, not this fund-of-fund case.
- AAt least 65% of its proceeds are invested in units of the other fund, which invests at least 65% in listed domestic equity
- BAt least 90% of its proceeds are invested in units of the other fund, which invests at least 90% in listed domestic equity sharesCorrect
- CAt least 90% of its proceeds are invested in units of the other fund, which invests at least 65% in listed domestic equity shares
- DAt least 65% of its proceeds are invested in units of the other fund, which invests at least 90% in listed domestic equity shares
Explanation
Section 198(8)(i) requires a minimum of 90% of the fund's proceeds in units of the other fund, and that other fund must itself invest at least 90% in listed domestic equity shares. The 65% test applies only in the direct case under clause (ii), so mixing thresholds is wrong.
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