I’ve transformed my common MFs to direct plans. What’s the tax implication?

I’m an NRI and have transformed my funds from common to direct plans with similar scheme and the identical AMC. The AMC has already deducted TDS . Do I’ve to pay LTCG or STCG? Do I’ve to declare this whereas submitting tax? What is the tax surcharge which was deducted together with TDS? 

– Vicky R.

(Query answered by Dr. Suresh Surana, founder, RSM India)

The switching of mutual funds from common plan to direct plans is handled as exit from one plan and entry into one other. Accordingly, that is handled as ‘transfer’ below Section 2(47) of the Income Tax Act, 1961 (hereinafter known as ‘the IT Act’) and is topic to capital positive aspects tax. The capital positive aspects tax price relevant on such transaction will depend on the interval of holding of the funds. The interval of holding can be decided primarily based on the kind of the items held by the NRI investor. In case of listed items of fairness oriented fund, the positive aspects can be thought of as long run, if held for greater than 12 months and accordingly subjected to tax @ 10% u/s 112A of the IT Act with out the advantage of indexation. If the items are held for as much as 12 months earlier than the swap, the identical can be thought of as quick time period and the identical can be subjected to tax @ 15% below Section 111A of the IT Act.

In case of the items being debt mutual fund items, the brink interval of 36 months might be made relevant and accordingly, any swap made after 36 months would appeal to long run capital positive aspects tax @ 20% u/s 112 of the IT Act whereas switching when such items have been held as much as 36 months can be taxed as short-term capital positive aspects as per the relevant slab charges.

However, any switch by a unit holder of a capital asset, being a unit or items, held by him within the consolidating scheme mergers of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or items, within the consolidated scheme of the mutual fund can be exempt u/s 47(xviii) of the IT Act. Thus, solely in case of the swap being on account of merger below the method of consolidation of the schemes of mutual fund in accordance with the SEBI, the identical can be handled as exempt.

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