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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Taxation of Equity Products

Under the Income-tax Act as applicable to equity-oriented mutual funds, which of the following conditions must be satisfied for a fund to be treated as an 'equity oriented fund' for tax purposes in the case of a fund that invests directly in Indian listed equity shares?

A fund qualifies as equity oriented for tax when at least 65% of its total proceeds are invested in equity shares of domestic companies. This threshold decides whether equity-style capital gains rates and holding periods apply to the fund units.

  1. AAt least 65% of its total proceeds invested in equity shares of domestic companiesCorrect
  2. BAt least 51% of its total proceeds invested in equity shares of domestic companies
  3. CAt least 90% of its total proceeds invested in equity shares of domestic companies
  4. DAt least 35% of its total proceeds invested in equity shares of domestic companies

Explanation

For tax purposes, an equity oriented fund must invest at least 65% of its total proceeds in equity shares of domestic companies (for funds investing directly). The 51%, 90% and 35% thresholds are not the statutory test; 35% is the residual level used in other contexts.

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