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What is the tax implications if I transfer inherited mutual fund units to my sister?

If you wish to give a share of the holdings to your sister, you will have to sell the units and gift the amount received from the sale.

ET CONTRIBUTORS|
Jun 10, 2019, 11.16 AM IST
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The tax is 10 percent on long-term capital gains exceeding Rs 1 lakh in a financial year.
I inherited some mutual funds from my late father. One scheme in which the initial investment was Rs 12 lakh is now worth Rs 19 lakh. I want to transfer half the units (worth Rs 9.5 lakh) of this fund to my sister. What process should we follow? Will there be any tax implication?
Prableen Bajpai Founder and Managing Partner, FinFix Research & Analytics replies: Inheriting mutual fund holdings is akin to inheriting property. Since the mutual fund holdings are now in your name, there is no provision to transfer or gift the mutual fund to your sister. If you wish to give a share of the holdings to your sister, you will have to sell the units and gift the amount received from the sale. As the mutual fund holdings are now in your name, you will have pay capital gains tax on the redeemed units.

The tax is 10% on long-term capital gains exceeding Rs 1 lakh in a financial year. However, the previous Budget proposed to grandfather investments made on or before 31 January 2018, and this will reduce your capital gains and tax liability. According to Section 56 (2), any sum received from relatives is not taxed. So, the amount you gift to your sister will be exempt from tax in her hands. Your sister should ideally disclose the amount received under ‘exempt income’ head while filing her income tax return.

I invested in a pension plan and paid Rs 3 lakh as premium between 2010 and 2012 (Rs 1 lakh per annum). I claimed Section 80C deduction in the relevant assessment years. The value of the accumulated corpus is Rs 5.19 lakh and the plan will mature in July 2020. If I surrender the policy and opt out of the annuity scheme, what will be my income tax liability on Rs 5.19 lakh? I fall in the 30% tax slab.
Ashok Shah Partner, N.A. Shah Associates replies: According to Section 80CCD, if a person has claimed deduction for the amount contributed to a pension plan, then any amount received on account of closure or opting out of the pension scheme is fully taxable. Since you have claimed benefit under Section 80C, the entire amount will be taxable at the tax rate applicable to you.

Note: In response to a query on investing retirement benefits to earn regular income (ET Wealth June 3-9), our expert omitted mentioning the Senior Citizens’ Savings Scheme (SCSS). This is among the best products for retirees. The scheme offers an annual interest of 8.7%, which is paid out every quarter. The maximum sum that can be invested in this scheme is Rs 15 lakh. The tenure of the scheme is five years and it can be extended by another three years. Besides senior citizens, retirees in the 55-60 age bracket can also invest in the scheme.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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