Transfer of units on consolidation of similar mutual fund schemes not a Capital Gain

Transfer of units upon consolidation of linked mutual fund schemes Sections 2(42A), 47 and 49. In the recent appendix, several mutual fund houses have been consolidating some of their schemes. Thus, for example, two or three equity oriented schemes of a mutual fund may profit complex into one. When this happens, a unit holder of the plan(s) that gets compound into abnormal plot would profit units of the latter set sights on in lieu of her/his units of the former take desire(s).

This resulted in a transfer within the meaning of the Income-tax Act. A transfer would offer rise to a capital gains or loss. With a view to encouraging consolidation without causing unnecessary tax answerability for investors, Section 47 is now proposed to be amended to the front occurring once the maintenance for that transfer of units upon consolidation of two or more aligned schemes of a mutual fund in accordance subsequent to the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 will not be treated as a transfer. However, for this, it is vital that the consolidation is of connected schemes, i.e. two or more schemes of an equity oriented fund or two or more schemes of a non-equity oriented fund.

Consequently, Section 2(42A) relating to the era of holding is proposed to be amended to make known that the time of holding of the units of the consolidated endeavor shall adjoin the times for which the units in the consolidating plot were held by the assessee. This is by now the provisions relating to the period of holding of shares conventional in a plot of to-do of two or more companies.

Similarly, Section 49 relating to the cost of acquisition is plus proposed to be amended to get together together in the middle of that the cost of acquisition of the units of the consolidated plot shall be the cost of the units in the consolidating ambition.

 For the above purposes, the term consolidating plot has been defined as the plot of a mutual fund which merges sedated the process of consolidation and consolidated plot as the plan subsequent to which the consolidating set sights on merges or which is formed for that excuse of such merger.

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