Types of income from mutual funds
Companies can earn income from mutual funds through dividends and capital gains. The tax treatment depends on the nature and period of the holding.

• Dividend income is received periodically from the fund house
  
• Capital gains arise when mutual fund units are sold for a profit
  
• Gains are classified as short term or long term based on the holding period
  
• The income must be declared under the head income from other sources or capital gains
  

Taxability of dividend income
Dividend income from mutual funds is fully taxable in the hands of the company. There is no longer any exemption or separate dividend distribution tax.

• Taxed at applicable corporate tax rates based on company status
  
• Dividend is included under income from other sources in ITR
  
• No threshold exemption applies to companies unlike individuals
  
• Expenses incurred to earn the dividend may be limited for deduction
  

Tax on capital gains from equity mutual funds
Equity mutual funds are those with at least sixty percent investment in Indian equities. Capital gains on such funds are taxed based on the holding period.

• Short term gains from holding less than twelve months are taxed at fifteen percent
  
• Long term gains above one lakh are taxed at ten percent without indexation
  
• Surcharge and cess are added to the base tax rate
  
• Gains must be declared in the capital gains schedule of the income tax return
  

Tax on capital gains from debt mutual funds
Debt mutual funds include those with less than sixty percent equity exposure. Taxation differs after the changes introduced from April two thousand twenty three.

• All gains from debt funds are now treated as short term capital gains
  
• Taxed at the applicable slab rate of the company
  
• No indexation benefit is available for companies
  
• Gains are taxed as part of business or capital income depending on treatment
  

Treatment under minimum alternate tax
Capital gains and dividend income affect the computation of book profits under minimum alternate tax. Companies must adjust these while computing MAT liability.

• Book profits include dividend and capital gains for MAT purposes
  
• Exempt income under other provisions is added back in MAT calculation
  
• Applicable to companies not opting for concessional tax regime
  
• MAT is computed under section one fifteen JB of the Income Tax Act
  

Reporting in income tax returns
Income from mutual funds must be reported accurately in the appropriate schedules of the company’s tax return. This helps in proper computation and assessment.

• Dividend income is shown under the schedule for other income
  
• Capital gains are shown in Schedule CG with detailed break-up
  
• Details of ISIN, fund name, purchase, and sale dates must be provided
  
• Any TDS on income should be claimed as tax credit in Schedule TDS
  

TDS and compliance for mutual fund income
Although companies are not subject to TDS on capital gains, dividend income may be subject to tax deduction at source based on prescribed limits.

• Fund houses may deduct TDS on dividend payments to companies
  
• TDS credit must be verified in Form 26AS and Annual Information Statement
  
• No TDS is deducted on redemption proceeds of mutual funds
  
• Companies must maintain accurate records to match with AIS data