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Hitesh Shah
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Joined: 12/Oct/2008
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Posts: 3656
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   Posted: 21/Sep/2009 at 9:20pm |
Originally posted by Monkey
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All unit linked plans provide options for switching between 100% equity allocations to 100% allocations to liquid funds at anytime during duration of plan. Such features could be utilised to book equity profits and park the proceeds in liquid funds without attracting capital gains as you would not receive gains in your hands. The withdrawals then can be calibrated in line with tax bracket or it can be switched back to equity mode at appropriate time..... |
Please make sure that the switch is not considered a redemption. If it is, then it is taxable, whether you get the cash in hand or not. As things stand, if you switch your units from an equity mutual fund to a debt mutual fund run by the same fund house (within a year), you don't get the money in hand but the gains, if any, are taxable as STCG.
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leo2007
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Joined: 22/Jul/2007
Location: India
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Posts: 262
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Posted: 21/Sep/2009 at 9:47pm |
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I think switching is considered as redumption for taxation purpose. I am not sure. In the case of MF we will have to choose dividend option, as dividend is not taxable.
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Monkey
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Joined: 21/Aug/2009
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Posted: 21/Sep/2009 at 10:40pm |
Originally posted by Hitesh Shah
Originally posted by Monkey
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All unit linked plans provide options for switching between 100% equity allocations to 100% allocations to liquid funds at anytime during duration of plan. Such features could be utilised to book equity profits and park the proceeds in liquid funds without attracting capital gains as you would not receive gains in your hands. The withdrawals then can be calibrated in line with tax bracket or it can be switched back to equity mode at appropriate time..... |
Please make sure that the switch is not considered a redemption. If it is, then it is taxable, whether you get the cash in hand or not.
As things stand, if you switch your units from an equity mutual fund to a debt mutual fund run by the same fund house (within a year), you don't get the money in hand but the gains, if any, are taxable as STCG.
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Hitesh bhai,
I am not talking about switching from equity scheme to debt scheme.
I am talking about uinit linked plans offered by insurance companies where switching is allowed within internal options and, hence, not considered as redemption, as per my understanding.
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Monkey
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Joined: 21/Aug/2009
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Posted: 21/Sep/2009 at 11:27pm |
Example of the plan I am thinking is per link below
Though above plan includes insurance and, hence, not exactly per my thinking, a similar one without insurance provision will do the job.
Looking at fetures of the plan, I do not think that internal switching is considered taxable.
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Monkey
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Joined: 21/Aug/2009
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Posted: 21/Sep/2009 at 11:55pm |
Another similar type of plan
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Hitesh Shah
Senior Member
Joined: 12/Oct/2008
Online Status: Offline
Posts: 3656
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Posted: 21/Sep/2009 at 8:05am |
Originally posted by Monkey
Another similar type of plan
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I went through this one. These switches will be taxable, IMHO.
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Hitesh Shah
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Joined: 12/Oct/2008
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Posts: 3656
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Posted: 21/Sep/2009 at 8:25am |
Originally posted by Monkey
....I am talking about uinit linked plans offered by insurance companies where switching is allowed within internal options and, hence, not considered as redemption, as per my understanding. |
Boss, the guys selling you the scheme want you to buy it (40% commission on your first year's contribution?  ). So they will assuage all your doubts with fake assurances. I know you may not be finally going for this option, but it is better to get the advice of someone like Sandeep Shanbhag, whose columns I've been reading over the years. He's good and so is Tarun Ghai. When I had looked at the tax-implications of switching between equity and debt, the MFs had a bald disclaimer that I should consult a tax expert as individual circumstances could vary. Finally, somewhere I got the message that a switch is a transaction to sell one set of assets and buy another and is taxable. The only "switches" which are not taxable are the changes involving dividend payout, dividend-reinvest or growth options. Even the starting date of your investment will be unchanged in terms of date of acquisition.
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Hitesh Shah
Senior Member
Joined: 12/Oct/2008
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Posts: 3656
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Posted: 02/Oct/2009 at 8:21am |
Elsewhere, Monk wrote:
Well, applicable capital gain tax would be 30% considering my
income and according to slabs defined in draft of direct tax code. This
is what troubles me a lot.
Let me describe briefly why I oppose tax on long term capital gains.
First, let us look at process of generating long term capital
gain. Person works hard to earn a living, save money by letting go of
many pleasures of life and make right investment decisions. Capital
gains made at the end of all this is cumulative fruit of life long hard
work and prudent decisions. This type of behaviour needs to be
encouraged and not punished. These gains are meant to secure good
retirement life and / or enabling person to enjoy fruits. Taking cut of
30% is just no fair in my opinion.
Second and probably more important is impact on our lives. Take
for example, capital raising process for long gestation project like
power plant. Setting up a power plant is hell of a problem right from
land acquisition onwards to dealing with all sorts of regulation while
operating. Anyone putting up capital for setting up a power project
takes enough risks. If things go right for the capital provider, that
person should be allowed to take gains from that capital fully. Taking
30% cut from those gains might result in lot of problems in raising
capital for capital intensive and long gestation projects like
infrastructure exactly when these investments are acutely needed. I do
not want to deprive myself and next generation, essentials of life.
Third reason is use of these taxes. Most of them will go in
feeding corruption ridden utopian schemes which do next to nothing good
for anyone except for political vested interests.
I welcome healthy debate on draft direct tax code and urge
everyone to carefully go through draft and voice there opinion
everywhere possible.
For me the draft direct tax code was like reading 21st century version of "Das Kapital".
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Please also try to read the discussion on the code (which is actually an official attempt to explain the thinking behind the draft). It is available at the Fin Min link that I gave earlier. (Better access this site with Internet Explorer. When I first viewed this site with FF, the relevant link was not visible although the site opened.) Another comment which is festering within me, is the differential interest shown in understanding the financials of a company rather than one's own! Or is it that people are under the impression that an individual cannot make a difference? Or, what will happen, will happen, so why take tension? And, the specious but fallacious bromide, "I'd rather have tax problem than income problem"!
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