Rollover of MFs Beyond 36 Months Not Capital Gains: CBDT

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In a major relief to investors, the rollover of mutual fund fixed maturity plans (FMPs) beyond 36 months will not attract capital gains.

A tax of 20 per cent will be charged at the time of redemption of plans. The Central Board of Direct Taxes has issued the clarification with regards to taxation on rollover of FMPs beyond 36 months.

Rollover of MFs Beyond 36 Months Not Capital Gains: CBDT

"The rollover...will not amount to transfer as the scheme remains the same. Accordingly, it is hereby clarified that no capital gains will arise at the time of exercise of the option by the investor to continue in the same scheme. The capital gains will, however, arise at the time of redemption of the units or opting out of the scheme, as the case may be," CBDT said.

FMPs are closed-ended funds having a fixed maturity date wherein the duration of investment is decided upfront.

Finance Minister Arun Jaitley had last increased the concessional capital gains tax rate from 10 to 20 per cent on debt-oriented mutual funds and also the holding period from 12 months to 36 months. Short-term capital gains are taxed at income tax rate of individuals.

As a result, gains arising out of any investment in the units of FMPs made before July 7, 2014 and sold/redeemed after the date would be taxed as short-term capital gains if the unit was held for a period of 36 months or less.

To enable the FMPs to qualify as long-term capital asset, some Asset Management Companies (AMCs) administering mutual funds have offered extension of the duration of the FMPs to a date beyond 36 months from the date of original investment by providing an option to investors to rollover of FMPs.

Representations were received in the CBDT seeking clarification regarding applicability of tax on capital gains at the time of roll over of FMPs.

Market regulator SEBI has also said the scheme remains the same in case of roll-over and does not constitute a different scheme.


Read more about: mutual funds, capital gains
Story first published: Monday, April 13, 2015, 9:33 [IST]
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