Want to save tax? Here's how gifting mutual funds can help you with it
Published by India Today
Abhishek Kumar's role: Quoted
Abhishek Kumar explained the rules to India Today, including that the holding period follows the original purchase date and that clubbing applies to gifts to a spouse or minor child. He cautioned that gifts can backfire and stressed proper documentation such as a gift deed.
What Abhishek Kumar said
If I gift mutual fund units, who pays capital gains tax and when?
Gifting units is allowed under Section 47(iii), which does not treat a gift as a transfer, so the donor pays no capital gains tax when gifting. The receiver pays tax only on selling, using the donor's original cost and holding period, counted from the donor's purchase date rather than the gift date. A recent SEBI change also lets both demat and statement-of-account units move directly without redemption.
Does gifting mutual fund units to a spouse or minor child save tax?
When the gift goes to a minor child, or to your spouse with nothing given in return, the gains are added to your own income, and for a child this continues until they turn 18. So gifting to a spouse or a minor does little to save tax, except where the spouse earns an independent income of their own.
Can gifting mutual fund units backfire?
Yes. If the person receiving the units is in a higher tax bracket than you, they may end up paying more tax on the gains than you would have. Gifting units that are still short term is another mistake, as the receiver inherits that status and pays short-term tax, when you could have waited for the units to turn long term.
How should a mutual fund gift be documented?
I advise making any gift only with proper paperwork, such as an irrevocable deed of gift that lists the securities, the quantity and details of both parties. Without it, there is a risk of unintended tax consequences and of scrutiny if the gift seems to lack genuine intent. Demat units move through a delivery instruction slip marked as a gift, while statement-of-account units can be transferred online with OTP verification.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on mutual funds
The article explains how gifting mutual fund units to relatives works under Indian tax law. It covers why a gift is not a taxable transfer for the giver, how the receiver's cost and holding period are carried over, when gains can be tax-free, who counts as a relative, clubbing rules for spouses and minors, and the steps to transfer units.
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Want to save tax? Here's how gifting mutual funds can help you with it