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I recently switched some of my mutual fund units to direct plans. Since the switch is treated as a redemption, I had to pay tax on the gains at that time. My concern is: when I eventually redeem these units in the future, will I have to pay tax again? Won't this amount to double taxation? - Rajan P A
When you switch from one mutual fund plan to another, including moving to a direct plan, it counts as selling your current investment for tax purposes. This means you'll need to pay capital gains tax on any profit you've earned up until the date of the switch.
However, when you redeem the units of the direct plan in the future, the tax will apply only to the gains made during your holding period of the direct plan units. There is no double taxation here.
Here's how it works:
- At the time of the switch: You pay tax on the gains earned while holding the original plan.
- At the time of final redemption: Tax is applicable only on the gains made during the period you held the direct plan units.
In short, each phase of your investment is taxed independently.
Also read: Buying or selling mutual fund units? Here's the cut-off timings you should know
This article was originally published on December 30, 2024.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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