Investment in mutual funds brings together a group of people and invests their money in stocks, bonds, and other securities who share a common financial goal. Each investor should know about the taxability of income received from these mutual funds.

Income received by a mutual fund is exempt in the hands of the investor, in case the Mutual Fund is registered under SEBI Act, 1992. However, such mutual funds are required to pay tax on income distributed to the unit holder (other than unit holder of open ended equity oriented fund) during 1.06.1999 to 31.03.2002. Equity oriented mutual funds are the ones which have invested more than 65% of their corpus into equity shares of domestic companies and the tax paid by the mutual funds is dividend distribution tax (DDT).

The Finance Act, 2002 has inserted a new section 115BBB to provide that income tax shall be charged @10 % in the hands of recipient on income from units of an open ended equity oriented fund of UTI or a Mutual Fund. The provisions of section 115BBB are applicable only for assessment year 2003-04.

Moreover, any capital gain arising out of transfer of units of Unit Scheme 1964, of UTI is exempt from tax.