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Tax Implications on Scheme Transfers

Mr. Sreedharan shifted from a fund's dividend option to the growth option. Here are the tax implications

After staying invested in a particular mutual fund for more than a year under the dividend payout option, I switched over to the growth option. I remained invested in the growth option for a period of two months and then redeemed my investment. What are the tax implications?
—Ramachandra Sreedharan


The dividend and the growth option constitute two different schemes of a mutual fund with two different NAVs. If you opted for a shift from dividend option to a growth option, it is actually an inter scheme transfer which is considered as a fresh investment in the growth scheme on basis of the transfer date's NAV. This transaction is similar to redeeming the investment manually from the dividend option and then investing the same in the growth option of a fund. There is no associated tax liability if an equity fund is held for more than a year. As you were invested in the dividend option of the fund for a period exceeding one year, there is no tax on the redemption amount which is transferred to the growth scheme (STT is deducted by the fund before paying you the amount). After the transfer, as you redeemed your investment after two months, you would need to pay a short term capital gains tax of 15 per cent on gains. This is to be disclosed when your file your income tax return at the end of the fiscal.




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