Budget 2017: Mutual funds cheer better clarity on scheme mergers

Himadri BuchMoneycontrol   Mutual fund investors have something to cheer from the budget.The FM today in his Budget speech proposed to take into consideration the holding period of the units held in erstwhile schemes for taxation purposes.      It clarified many of the concerns mutual fund investors had over whether they will be levied a tax on transfer of units between schemes/plans.The amendments will come into effect from April 1, 2017 and will be applicable in the assessment year 2017-18.This means scheme mergers will no longer be considered as fresh investments, allowing investors to make exits earlier without incurring taxes. For instance, long-term MF investors were deemed fresh investors the moment a scheme was merged with another one.

Mutual fund officials said that this was a clarification/amendments to the last year's proposal where the merger of a plan within the same scheme was exempted from capital gains. But the provision did not mention the cost of acquisition and the original holding period. "We are happy FM has clarified on the tax part for scheme mergers. The investors had to pay tax as it was treated as a redemption. So, earlier if two schemes of different fund houses merged, there was no tax," Jimmy Patel, Chief Executive Officer, Quantum Mutual Fund."But now, the FM has clarified that even if you merge two plans of the same fund house, no tax will be levied," Patel added.