The Securities and Exchange Board of India (Sebi) has asked fund houses to re-categorise their schemes to make it simpler for investors to understand and evaluate their investment decisions. As per the directive, equity mutual funds (MFs) are to be divided into 10 categories and debt funds into 16. Further, each fund house can only have one scheme in each equity and debt category.
Due to this many fund houses have started announcing the merger or consolidation of their schemes to comply with the Sebi directive. During such a merger, a switch from one scheme to another takes place, where an investor will incur either a capital gain or loss on such transaction. This is an important point to note because from April 1, 2018 a 10 percent (plus cess) tax will be levied on long-term capital gains (LTCG) made on the sale of shares and equity-oriented MFs.
Post re-categorisation of mutual fund schemes, many investors could face issues calculating LTCG for the purpose of taxation. Will investors be taxed even at the time of merger/consolidation of schemes? If not, how and when will LTCG be taxed? Read on to find out.
Capital gains on sale of units in a switch due to merger of schemes not taxable As consolidation of schemes takes place, there is good news for investors. "Merger or consolidation of schemes in order to re-categorise existing schemes as per Sebi orders would not attract any capital gains tax, either short-term or long-term, in the hands of the investor. The government had already amended section 47 of the Income Tax Act to exempt the capital gains arising from the
merger or consolidation of mutual fund schemes with effect from April 1, 2016,
What this means is that when a scheme is merged, you will not be taxed on the long and short term gains you will make whenever you will sell the units.
Another good news is that merger of equity MFs will not affect the holding period of your investments in the scheme.
In this case while calculating the holding period of an investment in order to ascertain the tax you are liable to pay on capital gains from it, the initial date of investment, i.e., the date when you first made the investment will be taken into account
LTCG at the time of redeeming your mutual fund investments Assuming that the equity mutual fund scheme you have invested in has been merged with another to comply with the Sebi directive, how do you calculate LTCG/loss? For equity investments held till January 31, 2018 capital gains are grandfathered. Therefore, one has to calculate LTCG based on certain parameters. According to the rules, the cost of acquisition (CoA) in such cases will be taken as the higher of:
a) Actual cost of acquisition and b) Lower of (i) Fair Market Value (FMV) on January 31, 2018 or (ii) actual sale proceeds Grandfathering of long-term capital gains on equity MF units has given rise to two cases: a) Equity schemes that are merged after February 1, 2018 b) Equity schemes that were merged before February 1, 2018
CASE A: Calculation of LTCG for equity schemes merged after February 1, 2018 Since the merger of schemes will be taking place after February 1, 2018, we have to consider two net asset values (NAVs). One NAV for units of the old scheme and the other for units of the new scheme.
To calculate LTCG accrued from the sale of merged mutual fund scheme units, one will take NAV of the old scheme as on January 31, 2018 to calculate the FMV. However, the units have to be adjusted proportionately, depending on the amount of units received on switch
ay you invested a lump sum amount of Rs 1 lakh in December 2016 in Scheme A. The NAV of the scheme at the time of investment was Rs 20. The scheme got merged with scheme B in April 2018. Switch-out NAV of scheme A is Rs 40 and switch-in NAV of scheme B is Rs 100. You then sold your investment in June 2018 at an NAV of Rs 120.
Here we have assumed that FMV of scheme A is Rs 35 as on January 31, 2018 and FMV of scheme B as on January 31, 2018 is Rs 80.
Now to calculate LTCG in such a situation, Krishnan says FMV of Scheme A will be used. The calculation will take place as follows:
*LTCG up to Rs 1 lakh is ignored in both the cases
FMV in the above example has been calculated as: 35 X 2000 X (5000/2000). If only partial units are sold then, then you will have to substitute the number of units sold accordingly to calculate FMV, adds Krishnan. It is to be noted that here the FMV of scheme B plays no role because the calculation is based on the FMV of your investment as on January 31, 2018 which only relates to scheme A.
CASE B: Calculation of LTCG in equity schemes merged before February 1, 2018 The above mentioned scenario will be applicable to many investors as fund houses have started announcing the merger of their schemes to comply with Sebi's order. There might be some investors whose schemes were merged before tax on LTCG from equity mutual funds was announced on February 1, 2018.
FMV of the new scheme as on 31 January, 2018 will be taken into account for calculating LTCG on equity mutual fund schemes that were merged before the announcement of the budget on February 1, 2018.
Here is how LTCG will be calculated in this scenario. Say you had invested a lump sum amount of Rs 1 lakh in December 2016 in Scheme A and NAV at that time was Rs 20. The scheme was merged with scheme B in February 2017.
As mentioned above, since there is a consolidation of scheme, the transaction will be considered as a switch. Switch-out NAV of scheme A is Rs 25 and switch-in NAV of scheme B is Rs 60. You then sold the units in April 2018 at an NAV of Rs 100.
As per the rules mentioned above, to calculate FMV of such units, NAV of scheme B as on January 31, 2018 is required. Assuming NAV of scheme B as on January 31, 2018 is Rs 80, Chandak explains in such cases, the Cost of Acquisition (CoA) and tax on LTCG will be calculated as follows:
LTCG Calculation *LTCG up to Rs 1 lakh is ignored in both the cases
What you should do Mergers or consolidation can lead to change in the fundamental attributes and investment philosophy of the scheme. Therefore, you should not just consider the taxation angle when deciding on whether you should stay invested or not. See where all the 'new' avatar of the scheme will be investing now to take a call.
SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds
For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300
ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds Application Forms For further information contact SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...
What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...
Public Provident Fund (PPF) account has a lock in period If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money. The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17. There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...
Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Performance of the scheme will be benchmarked to the S&P BSE 500 index ICICI Prudential Value Fund is a closeended equity scheme. The scheme will have tenure of three years (1095 days) from the date of allotment of units. Units of the scheme will be fully redeemed at the end of the maturity period, unless rolled over. NFO PERIOD: The NFO is open from October 18 to 28. The minimum subscription during the NFO period is Rs 5,000. SCHEME OBJECTIVE: The scheme aims to provide long-term capital growth by investing in a well-diversified portfolio of equity and equity-related securities. INVESTMENT STRATEGY: The fund proposes to invest in stocks that are trading at a huge discount in the BSE 500 index and plans to book profit and distribute dividen...
