I wish to keep certain amount in a debt/liquid fund and systematically switch or transfer the money in an equity fund after six month. I want to keep the investment for two to three years. I want to know whether I am liable for income tax on short/long term capital gains?
- Rakesh Kumar Gupta
When you switch or transfer money from a scheme to another, it is considered as a redemption in one scheme and purchase in another. Since you would be holding the debt fund only for six months before start redeeming it, your short-term capital gains would be added to your income and taxed as per the applicable slab. Debt investments held over three years qualify for long-term capital gains tax of 20 per cent with indexation benefit.
You mentioned that you plan to hold your equity investment for two to three years. We recommend investing in equity only if you have an investment horizon of at least five years. This is because though equity has the potential to offer superior returns in the long term, it can be extremely volatile in the short term.
This article was originally published on October 20, 2015.
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