Section 115BBB: Tax on Income from Open-Ended Equity Mutual Fund Units
Section 115BBB of the Income-tax Act, 1961 introduced a special 10% tax rate for specified income from units of open-ended equity-oriented funds of the Unit Trust of India or mutual funds. It does not apply to income arising after 31 March 2003.
What did Section 115BBB cover?
Inserted by the Finance Act, 2002 with effect from 1 April 2003, Section 115BBB dealt with income from units of an open-ended equity-oriented fund of the Unit Trust of India (UTI) or a mutual fund. It prescribed a separate rate on the covered unit income, with the remainder of the assessee's taxable income taxed under otherwise applicable provisions.
The section was deliberately time-limited: its second sub-section excludes income from such units arising after 31 March 2003. It should not be used to calculate tax on present-day mutual fund returns.
Section 115BBB explained, clause by clause
Sub-section (1): Special 10% computation
Where total income included qualifying income from units of an open-ended equity-oriented UTI fund or mutual fund, income tax was calculated as the sum of:
- 10% of the qualifying income from those units; and
- the income tax otherwise chargeable on the balance of total income, after excluding that qualifying unit income.
Sub-section (2): Expiry of the special treatment
Sub-section (1) does not apply to income from the specified units arising after 31 March 2003. This cut-off is the key limitation when interpreting the provision today.
Explanation: Defined expressions
The Explanation refers the meanings of Mutual Fund, open-ended equity-oriented fund and Unit Trust of India to the Explanation to Section 115T as it applied under the historical statutory framework.
Definitions and legal context
- Mutual fund
- A pooled investment vehicle holding assets for unit-holders; for this historical section, the precise statutory meaning was imported from the Explanation to Section 115T.
- Open-ended equity-oriented fund
- A qualifying open-ended fund invested in equity under the historical statutory definition referred to in Section 115T; it should not be assumed to have exactly the same definition as a present-day equity-oriented fund under capital-gains provisions.
- Unit Trust of India
- The entity referred to in the historical UTI statutory framework and Section 115T Explanation.
- Income from units
- The type of unit-related income addressed by Section 115BBB. The provision must not be confused with a general capital-gains rate on the sale or redemption of units.
How is mutual fund income taxed now?
Current tax treatment is not determined by Section 115BBB. Depending on the transaction and tax year, the applicable rules may include:
| Type of income | Relevant legal approach |
|---|---|
| Distributions from mutual fund units | Generally assessed under the applicable income provisions; the former dividend distribution tax framework was changed from 1 April 2020. Consider applicable withholding provisions. |
| Short-term gains on qualifying equity-oriented units | Section 111A of the 1961 Act for the relevant years, including the revised 20% rate for qualifying transfers on or after 23 July 2024. |
| Long-term gains on qualifying equity-oriented units | Section 112A of the 1961 Act for relevant years, including the revised 12.5% rate and annual threshold of Rs. 1,25,000 for qualifying gains under the amended rules. |
| Specified mutual funds and other non-equity units | Separate classification and capital-gains rules may apply, including Section 50AA where applicable. Check acquisition dates and statutory definitions. |
| Tax year beginning 1 April 2026 onward | Consult the Income-tax Act, 2025 and applicable transition, rate and withholding provisions instead of assuming that old section numbering continues. |
Tax treatment varies with residential status, fund composition, acquisition and transfer dates, exemptions and statutory amendments. The rates above are not a substitute for transaction-specific computation.
Illustration of the historical calculation
Suppose an assessee had Rs. 50,000 of qualifying unit income within the historical scope of Section 115BBB, and Rs. 3,00,000 of other taxable income. The special tax component on the qualifying unit income would have been Rs. 5,000 (10% of Rs. 50,000). The other Rs. 3,00,000 would be assessed separately under the rates and rules applicable to that assessee for that year, subject to relevant additions or relief.
This example is historical only. The same calculation must not be applied to income arising after 31 March 2003.
Official legal resources
- Income Tax Department - Income-tax Act, 1961
- Income Tax Department - e-Filing portal and guidance
- India Code - Central legislation and statutory texts
- Income Tax Department - Official tax resources
For historical interpretation, refer to the text of Sections 115BBB and 115T as applicable to the relevant year, together with the Finance Act, 2002. For current transactions, consult the law effective for the relevant tax year.
Frequently asked questions
Is Section 115BBB applicable to mutual fund income today?
No. Section 115BBB(2) expressly excludes income arising after 31 March 2003. Present-day mutual fund taxation depends on the nature of the income, fund and transaction.
What was the tax rate under Section 115BBB?
The section prescribed a special income-tax rate of 10% on the specified income from units during its limited period of operation.
Does Section 115BBB govern capital gains on redemption of mutual fund units?
The provision addressed income from units under its historical framework. Capital gains on current redemptions or transfers must be analysed under the applicable capital gains provisions.
What is the significance of 31 March 2003?
Under Section 115BBB(2), the special 10% treatment does not apply to income from the specified units arising after that date.
Last reviewed: 26 October 2026. This article provides general statutory information and is not a substitute for advice on a particular assessment year or transaction.