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Taxation on Systematic Transfer Plans

An STP from one fund to another is considered as a redemption and new purchase for taxation purposes

What will be the taxation impact if I establish STP from an equity fund which has completed its anniversary (12 month ) to ELSS funds, so as to enjoy tax-free capital gain on one hand and deduction under 80C on the other?
- Mukesh Mehrotra

Transfer from one fund to another in case of STP is considered as a redemption and a new purchase for taxation purposes. Thus, if you redeem from equity fund before completion of 12 months, short term capital gain tax would apply. In your case as your fund has completed 12 months, long term capital gain tax would be applicable which is nil for equity funds. Simultaneously, your investment into ELSS would save you taxes under Section 80C. ELSS investments have a lock in period of three years commencing from purchase date. Therefore, do note that each of your instalments invested into the ELSS plan will carry a three year lock in period.



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