Budget 2017 clarifies on mutual fund scheme merger

Mutual fund industry is busy deciphering an indecipherable paragraph in Budget 2017.

It reads: Consolidation of plans within a scheme of mutual fund Finance Act,2016 amended section 47 of the Act so as to provide tax neutrality to the transfer of units in a consolidating plan of mutual fund scheme made in consideration of the allotment of units in the consolidated plan of that mutual fund scheme. It is proposed to amend section 2(42A) and section 49 to provide that cost of acquisition of the units in the consolidated plan of mutual fund scheme referred to in section 47(xix) shall be the cost of units in consolidating plan of mutual fund scheme and period of holding of the units of consolidated plan of mutual fund scheme shall include the period for which the units in consolidating plan of mutual fund scheme were held by the assessee. 30 These amendments will take effect accordingly, from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.

“I think this pointer in the document is just a clarification of what was inferred earlier as well,” said the CEO of a mutual fund. He refused to be quoted because he said he is not entirely sure about the proposal.


“It was notified earlier that scheme merger in mutual funds will not be subject to any taxation. The budget document just made it official, he said.

Earlier, when two mutual fund schemes got merged, an investor had to pay tax on the old scheme because the merger was considered a redemption. “This statement appears in the budget document was introduced last year,” Nilesh Shah, MD, Kotak AMC.

“Earlier, if two schemes of different mutual funds merge, there is no taxation. Now, there is a clarity that even if you merge two plans within the same mutual fund, there is no taxation,” he added.