I have some investments in equity mutual funds. I am switching them from one equity fund to another equity mutual fund and sometimes to the liquid fund of the same fund house within one year of investment. I am not redeeming the units and therefore I do not get the money. Do I have to pay tax?
Yes, there are tax repercussions while switching from one mutual fund scheme to another (whether or not through the systematic transfer plan). Any switch is considered as redemption from one fund and a fresh purchase in another for taxation purposes. Therefore, if you park money in the growth option of an equity fund and switch within one year, it will attract short-term capital gains tax at 15 per cent of the gains. If you do so after one year, it will not attract any taxes. If you switch out of a liquid fund within three years, the gains will attract short-term capital gains tax. You will have to add the gains to your income and pay tax at your slab rate.