SWITCHING BETWEEN FUNS : ALL EXPENSES

 When we switch from one MF to another fund- be equity fund or debt-or when we switch from a regular growth to direct growth fund, does it amount to sale and thus attract ST or LT capital gains tax?( In the case of equity MFs, there is a deduction of securities transaction tax(STT) in switch-outs. Secondly, when we purchase or sell shares, the following charges are added to purchase or sale price

(a) Brokerage

(b)STT

(c) Toc NSC Exchange

(d) GST

(e) Stamp Duty

(f) Sebi turnover 

of these which can be added to purchase price or deducted from the sale price.

Investment in each scheme is treated as a separate capital asset. Switching from one scheme to another scheme will be treated as transfer under the I.T. Act 1961 and will be subject to the levy of capital gain tax. In case of equity- oriented funds, if you switch within one year from the date of investment the gain or losses will be short term. The short term gain would be taxes at 15% plus applicable surcharge. In case the same is switched after one year of making the investment, the gain or losses will be long term. The long term gain will taxed at 10% plus applicable surcharge without availing any indexation benefits. The long term capital gains up to 1 lakh will be exempt from the tax, in case debt oriented funds  if you, if you switch within three years from the date of investment, the gains or losses would be short term. The short-term gain will be taxed at applicable slab rates. If the same switched after three year of making investment, the gains or losses would be long term. The long term gain will be taxed at 20% with indexation benefit.

As per Section 48 of the IT Act 1961, while computing the income under the head capital gain, expenditure incurred wholly and exclusively in the connection with transfer of Capital assets is allowed as deduction. However provision to Section 48 specifically excludes deduction for STT paid while computing the capital gain. Accordingly, you will eligible to claim deduction for all the expenditure listed in the question except the STT is specifically excluded.