How does ELSS taxation change if primary holder dies?

What volition beryllium taxation connected superior gains if the superior holder of a associated relationship for communal funds (MFs) dies and the subsister decides to redeem the units soon after. Consider a script wherever the associated relationship holders invested successful an MF equity linked savings strategy (ELSS) connected 1 January 2023.  Soon aft  the decease of the superior holder successful aboriginal 2024, the units are transferred to the 2nd relationship holder's folio. There is simply a lock-in play of 3 years for ELSS MF but this is not valid station the transmission of units. What is the taxation if the subsister receives the MF units connected 10 April and redeems it wrong 10 days?

—Gurtejinder

From the facts provided, we recognize that arsenic per the associated holding argumentation of the money (anyone oregon survivor), units of the ELSS money would beryllium transmitted to oregon inherited by the surviving relationship holder. Also, the lock-in play of 3 years is not applicable for the survivor. As per the provisions of the Income-tax Act, inheritance does not suffice arsenic ‘transfer’ and hence, nary superior gains would originate astatine the clip of transmission of the MF units.

As and erstwhile specified units are further sold (subject to immoderate specified lock-in provisions of the fund), the subsister would request to wage superior gains. Any summation oregon nonaccomplishment arising from merchantability of ELSS funds held for a play of much than 12 months anterior to their merchantability is considered arsenic semipermanent superior summation  (LTCG) oregon semipermanent superior nonaccomplishment (LTCL). Else, the aforesaid shall beryllium considered arsenic short-term superior summation (STCG) oregon short-term superior nonaccomplishment (STCL).

Cost indexation

LTCG successful excess of Rs1 lakh is taxable astatine the complaint of 10%, whereas STCG is taxable astatine 15%. Please enactment that for calculating the play of holding of specified inherited units, the play for which the plus was held by the erstwhile holder, successful this case, the deceased, shall beryllium considered. For the intent of calculating LTCG, the outgo of acquisition shall beryllium the existent outgo borne by the deceased. Accordingly, since the play of holding exceeds 12 months for inherited and survivor’s share, the aforesaid shall beryllium considered to beryllium a merchantability of agelong word superior plus and immoderate gains shall beryllium taxable astatine 10% (for LTCG exceeding Rs1 lakh). No payment of outgo indexation is disposable portion calculating taxation connected LTCG of specified securities transaction taxation (STT) paid ELSS.

Also read: Income taxation benefits connected 2nd location indebtedness — Explained

Please enactment that the supra is taxable to the lock-in provisions applicable for the scheme. In lawsuit the ELSS money is sold wrong the specified lock-in period, immoderate interaction of taxation payment oregon deduction claimed astatine the clip of investing of the money volition request to beryllium separately evaluated.

Parizad Sirwalla is spouse and head, planetary mobility services, tax, KPMG successful India.

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Published: 28 Apr 2024, 02:38 PM IST