There is some good news for mutual fund investors. The draft Budget 2017 has issued a clarification on scheme merger in which it has proposed that the actual date and cost of investment of merged scheme would be considered for taxation as against the date of investment of the surviving scheme.
Simply put, if an investor chooses to exit the surviving scheme after the consolidation then the date and cost of investment of the merged scheme would be considered for taxation purpose. So far, the date and cost of investment of surviving scheme was considered for taxation purpose.
In the budget speech document, Union Finance Minister Arun Jaitley has said, “It is proposed to provide that in case of unit in the consolidated plan of a mutual fund scheme received in lieu of unit in the consolidating plan, the actual cost and the period of holding shall be the cost and the period of holding of the unit in the consolidating plan.”
In Budget 2016, the Finance Minister had clarified that merging multiple plans within a scheme will not attract capital gains tax. Similarly, the Budget 2015 had provided tax neutrality on transfer of units of mutual fund for scheme mergers only.
It may be recalled that in 2012, SEBI had asked fund houses to do away with multiple plans within a scheme. “AMCs shall launch schemes under a single plan and ensure that all new investors are subject to single expense structure,” stated a SEBI circular issued in 2012.
Fund officials feel that the move may help expedite the scheme merger.
