Your Queries (Income Tax): Switch from dividend to growth option in MF is a taxable transfer

Whereas brief time period capital positive aspects from debt funds shall be taxable at relevant slabs, long-term positive aspects shall be taxable at 20%, after indexation.

By Chirag Nangia

I had invested Rs 1,50,000 in Prudence Fund (dividend possibility) in three tranches from February 23, 2017 to February 15, 2018 for five,000 items at Rs 30 per unit. On June 1, 2018 this fund was merged with the corporate’s balanced benefit fund and my holding shrank to 4000 items for Rs 1,00,000 at Rs 25 per unit. On April 4, 2020, I switched to a development possibility and have been allotted 2,000 items at Rs 45 per unit. Now on June 1, 2021, NAV of the fund jumped to Rs 90 and my funding worth went as much as Rs 1,80,000. If I promote now, what would be the long-term capital positive aspects?
—Aloke Ranjan Siddhanta
The Earnings Tax Act offers that switch by the use of merger of two or extra fairness/ debt-oriented funds shall not be considered taxable switch by the unit holder. Due to this fact, there are two incidences of taxation on this case, as soon as upon switching possibility from ‘dividend’ to ‘development’ after which upon remaining sale of mutual funds. The change was made in FY 2020-21 and due to this fact capital acquire shall need to be calculated and reported within the earnings tax return for the monetary 12 months. Likewise, if remaining sale of funding takes place in June 2021, the resultant long run capital acquire shall be taxable in FY 2021-22 (the return for which shall need to be filed subsequent 12 months).

Additional, whereas the interval of holding of mutual funds, that turned the property of the assessee on account of merger of funds, shall be taken from the date of preliminary funding (i.e. in 2017-2018), the interval of holding in case of sale of mutual funds so transformed, shall be taken from the date of change to development plan (April 2020).

For computation of capital positive aspects, the character of funding schemes shall need to be ascertained. If the mutual funds are equity-oriented then capital positive aspects will probably be ‘long-term’, if held for a interval multiple 12 months and shall need to be computed by subtracting from the sale consideration, the price of acquisition (with out indexation, after contemplating grandfathering provisions).

The resultant capital positive aspects, in extra of Rs 1 lakh is taxable at 10%. If the mutual funds are debt-oriented, then the character of capital positive aspects shall be long-term if held for a interval greater than three years, else the identical shall be thought-about as short-term. Whereas brief time period capital positive aspects from debt funds shall be taxable at relevant slabs, long-term positive aspects shall be taxable at 20%, after indexation.

The author is director, Nangia Andersen India. Ship your queries to fepersonalfinance@expressindia.com