Outlook Money
When gifting mutual funds, tax liability depends on the recipient and the type of fund. Knowing these rules ensures the transfer is beneficial, compliant, and avoids unexpected taxation.
Gifting mutual fund units does not restart the holding period. The recipient inherits the existing status, which determines whether the units are long-term or short-term based on your original purchase date.
Debt funds can be tax-efficient for adults in lower income brackets. Gains may remain exempt if total taxable income stays under Rs 12 lakh, unlike equity funds, which are taxed.
Gifting to a spouse or minor child results in the gains being clubbed back to your income. Tax efficiency is better when gifting to adult relatives in lower tax brackets.
Gifts to friends or extended family exceeding Rs 50,000 are treated as the recipient’s income and taxed. Awareness is crucial to avoid unexpected taxation and compliance issues.
Gifting to recipients in higher tax brackets can increase tax liability. Equity fund gains are taxed differently based on type and timing, affecting the overall efficiency of the gift.
Mutual fund gifting can be tax-efficient and smart if you follow the rules. Choosing the right recipient, fund type, and timing ensures maximum benefit and minimal tax.