Section 10(23D) of the Income Tax Act provides a tax exemption for the income of certain mutual funds in India. This provision is designed to promote collective investment schemes and deepen the capital markets.
Who Qualifies:
The exemption applies to:
- Mutual Funds registered under the SEBI Act, 1992, or regulations made thereunder.
- Mutual Funds set up by public sector banks or public financial institutions, or those authorized by the Reserve Bank of India, provided they are notified by the Central Government in the Official Gazette.
Nature of Exemption:
- The entire income of such mutual funds is exempt from income tax.
- This includes income from investments, dividends, interest, and capital gains.
Example:
Suppose ABC Mutual Fund, registered with SEBI, earns ₹500 crore in a financial year from its portfolio of equity and debt investments. Since it is a SEBI-registered mutual fund, the entire ₹500 crore is exempt from income tax under Section 10(23D).
This exemption ensures that mutual funds can pass on returns to investors without tax leakage at the fund level. However, investors may still be taxed on distributions or capital gains depending on the type of fund and holding period.
