Question : All the dividend earned from ELSS (tax saving mutual funds) are taxfree?
All dividends earned from tax saving mutual funds are tax free or some dividends from same schemes can be taxable if earned in sepecific circumstances (i heard that dividends from ELSS are only taxfree if u holding that ELSS for more than 3 months, like if i buy ELSS on 1st Jan 2008 then only those dividends will be tax free which will be declared after 1st march 2008 and all dividends declared before 1st march will be taxable for me. is it true?)
- asked by Rohit Sharma
All Answers:
Answer #1
Dividend is tax-free in your hands but suffersfrom dividend distribution tax (DDT) before it ispaid to you. In the case of growth option, youwill have to pay tax on the growth portion at30.9% which is the rate applicable to you onshort-term capital gains. The DDT rate applicableto FMPs is 14.165%. Even in the unlikely event ofthe underlying plan being classified as liquidfund, the DDT will be 28.325%. In either case, youhave the tax arbitrage. So for short-term FMPs(less than one year), always choose the dividendoption. On the other hand, for longer termed FMPs(one year or more), always choose the growthoption where the tax rate is 10%. Any contributionto ELSS is eligible for the benefit of deductionu/s 80C (and not 80CC). Dividend reinvestedpartakes of the character of fresh contributionsand hence each such dividend is eligible u/s 80C.Moreover, each such dividend has a lock-in ofthree years from the dates of reinvestments
- answered by Shreya S
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