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Reader’s question: What is the tax treatment of mutual fund units received through transmission? For capital gains calculation, will the acquisition date be considered as the original purchase date or the date of transfer? - Thirumala Rao J
When mutual fund units are inherited after the death of the original investor, the transfer is known as transmission. Unlike a sale, transmission does not trigger any immediate tax liability because ownership is merely transferred to the legal heir or nominee.
For tax purposes, the heir effectively steps into the shoes of the deceased investor. This means that both the original purchase price (cost of acquisition) and the original purchase date are used to calculate capital gains when the inherited units are eventually sold.
How inherited mutual funds are taxed
Tax is payable only when the inherited units are sold. The applicable tax depends on the type of mutual fund and the date on which the original investor purchased the units.
Equity mutual funds
- Long-term capital gains (LTCG), where the holding period exceeds one year, are tax-free up to Rs 1.25 lakh in a financial year. Gains above this limit are taxed at 12.5 per cent.
- Short-term capital gains (STCG), where the holding period is one year or less, are taxed at 20 per cent.
Debt mutual funds
If the original investor purchased the units on or after April 1, 2023, the entire capital gain is added to the heir's taxable income and taxed according to their applicable income-tax slab, regardless of the holding period.
If the original investor purchased the units before April 1, 2023:
- Held for 24 months or less: Capital gains are taxed at the heir's applicable income-tax slab.
- Held for more than 24 months: Long-term capital gains are taxed at 12.5 per cent (without indexation).
An example
Suppose an investor purchased equity mutual fund units on January 1, 2019, for Rs 5 lakh. The investor passed away in January 2024, and the units were inherited by their child. The child sold the units in March 2025 for Rs 12 lakh.
Since the original purchase date of January 1, 2019, is considered, the holding period exceeds one year, making the gains long-term capital gains.
The capital gain is Rs 7 lakh (Rs 12 lakh - Rs 5 lakh).
- The first Rs 1.25 lakh of long-term capital gains is exempt from tax.
- The remaining Rs 5.75 lakh is taxed at 12.5 per cent.
The tax payable is Rs 71,875.
Also read: File your tax return in the right order
This article was originally published on March 20, 2025, and last updated on July 21, 2026.
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