Mutual funds

Tax queries 713 views 9 replies

CA.Swathi Jain

155 Points Joined March 2010

Hi all,

I have a query with respect to mutual funds..An individual has invested in mutual funds and redeemed the units within a period of one year from the date of purchase. So the difference is chargeable to capital gain tax on the slab rate. In between the date of purchase and sale, the individual has shifted the units to different schemes of the same fund. For example, from monthly dividend scheme to weekly dividend scheme and from dividend to growth scheme. My query is whether change in scheme also will be considered as transfer for capital gain tax or only the redemption will be considered as sale and chargeable to tax.

thanks in advance.

Replies (9)

CA.Swathi Jain

155 Points Joined March 2010

https://www.financialexpress.com/news/dividend-reinvestment-is-not-a-constructive-transfer/533117/

The above link says the shift from scheme is also a transfer but need some more clarity on this...

Ankit

CA CS

3064 Points Joined June 2009

Dear Swathi,

yes shift in scheme of MF means that he sells off the units of one scheme and invests them into another. the only thing being the funds, without coming to his bank account, are directly invested into the new scheme

hence it is sale of the units

CA.Swathi Jain

155 Points Joined March 2010

Thanks for the reply Ankit...

will it apply to both dividend payout to dividend reinvestment scheme and dividend payout to growth scheme?

hardesh tolani

Audit assistant

48 Points Joined January 2011

No it will not amount to Redemption. It is only Mere a book entry transfer used to pass by the mutual fund company.

CA.Swathi Jain

155 Points Joined March 2010

The link from financial express says it will not be considered a transfer when changed among divdend schemes... any reference material you have for the same?

Ankit

CA CS

3064 Points Joined June 2009

yes it applies equally to all the schemes.

the only thing is that in case of a switch out from dividend reinvestment scheme to any other scheme, the cost of acquisition in respect of the div reinvested, will be the NAV on the date of declaration of dividend

CA Bhargav Nathwani

CA in Practice

8307 Points Joined August 2012

Hardesh is very truly said.. switch entry never effect Capital Gain... see switch Option only availabe in inter transfer of your fund in particular AMC.. kotak equity growth TO kotak equity Dividend is inter transfer so at that time CG is not attract..

Balaji

Knowledge Seeker

317 Points Joined March 2009

Dear Swathi,

1) when you transfer from Growth to Dividend Option(Payout/Re-investment) or vice-versa,Capital Gains would be attracted.

2) However,transfer from Dividend Payout to Re-investment or vice-versa would NOT attract any capital Gains.

Please note that the NAVs of Dividend Pay-out and Re-investment are the same and it is just a matter of choice for the investor whether he wants to receive the dividend in hand or not.On the contrary,the NAV of a Growth Option is different from the Dividend Option and any switch between them is equivalent to switching schemes.