Charges and Taxation

What are the charges associated with buying/selling ETFs?

There are various charges associated with different categories of ETFs. Major charges which are common across ETF segments are:

• Brokerage (varies depending on the broking platform you transact through)

• Exchange transaction (turnover) charges, 

• Clearing charges, 

• Securities Transaction Tax (STT) (does not apply to GOLD ETFs, LIQUID and Gilt ETFs, and few international ETFs)

• Stamp duty, 

• Turnover charges levied by SEBI.

• + GST as applicable.
  
  

The STT on other ETFs is as follows:

• 0.002% on the sell side for delivery and BTST trades.

• 0.025% on the sell side for intraday trades.

To find out which instruments are not subject to STT, you can download the STT Non-applicability report from nseindia.com/all-reports.

Are there Annual AMC fees for holding ETFs?

There are no annual fees for holding ETFs. Nevertheless, Annual Maintenance Charges (AMC) imposed by your respective broking platform broker will apply. 

How are dividends taxed for ETFs?

Beginning of the financial year 2020-21, the earnings from dividends in ETFs are subject to taxation based on the investor's income. The amount of tax owed is determined by the income tax slab applicable to the investor.

Dividends on Liquid ETFs are taxed as per the income tax slab rate of the investor. When the units are sold, the amount on which tax is already paid is treated as the cost of acquisition, and the gains are then taxed under income from capital gains.

If the dividends cross ₹5,000, an additional TDS of 10% is applicable.

Are there any capital gains taxes for ETFs?

Capital gains are imposed upon the sale or redemption of ETF units. The profit derived from these transactions is subject to capital gains taxation. The extent of these capital gains relies on both the specific type of ETF and the duration of the holding period. The tax framework for capital gains is provided in the table below.

For equity ETFs, 

• If the holding period exceeds one year, long-term capital gains tax is applicable. The long-term capital gains tax is 12.5%, plus applicable surcharges and cesses

• Holding periods of less than one year attracts short-term capital gains tax. Short-term capital gains tax is 20%, plus surcharges and cesses.
  
  

Other types of ETFs, such as gold, debt, and international ETFs, are taxed according to the income tax slab, irrespective of the holding period.