The Securities and Exchange Board of India has proposed exempting long-term capital gains tax for investors who sell mutual fund units specifically to reinvest in other funds. Under current rules, switching between schemes triggers a 12.5% tax on investments held longer than 12 months, or 20% for shorter durations. Removing this levy ensures the entire capital amount stays invested to maximize compounding growth. However, the government faces revenue constraints due to high crude oil prices and spending demands in agriculture caused by deficit rainfall.
Key points
Reinvesting the full value without immediate tax deductions would help investors maximize…: Reinvesting the full value without immediate tax deductions would help investors maximize compounding returns over time.
Investors would gain the flexibility to exit underperforming mutual funds without incurri…: Investors would gain the flexibility to exit underperforming mutual funds without incurring penalizing immediate tax liabilities.
Budgetary pressures from deficit rainfall and costly crude oil might complicate the gover…: Budgetary pressures from deficit rainfall and costly crude oil might complicate the government's ability to sacrifice this tax revenue.
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The Securities and Exchange Board of India (SEBI) has also proposed tax relief for domestic mutual fund investors, suggesting they be exempt from LTCG if they are selling existing holdings to invest in new ones, as per an ET report. This is a pre-budget proposal from SEBI to the government and experts say if this is implemented then it can help Indian mutual funds investors potentially generate more returns from their investments.
At present, if a mutual fund is sold after 12 months it attracts 12.5% long term capital gain tax and if sold before 12 months then 20% short term capital gains tax. However, this tax is not just for selling but even for switching from one fund to another. For example: You have Rs 10 lakh invested in a small cap mutual fund and want to switch to a large cap mutual fund after 13 months, so 12.5% LTCG tax applies at the time of switch. Experts say that for rebalancing a portfolio individuals need to switch funds at specifically planned intervals and taxing such switches increases the…
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