Circular No. 6 of 2015<\/strong><\/p>\n

F. No. 133\/39\/2014-TPL<\/p>\n

Government of India<\/p>\n

Ministry of Finance<\/p>\n

Department of Revenue<\/p>\n

Central Board of Direct Taxes<\/p>\n

(TPL Division)<\/p>\n

Dated 9th April, 2015<\/p>\n

Subject:      <\/strong>Capital gains in respect of units of Mutual
\nFunds under the Fixed<\/strong><\/strong><\/p>\n

Maturity Plans on extension of their term<\/strong><\/p>\n

As per the provisions of the Income-tax Act, 1961 (hereinafter referred
\nto as the Act) prior to the amendment made by the Finance (No.2) Act, 2014,
\nassets in the nature of shares, listed securities, units of mutual funds and zero
\ncoupon bonds qualified as long term capital assets if held for a period of more than
\ntwelve months as against the holding period of more than thirty-six months in case of
\nother assets. Accordingly, units of a mutual fund under the Fixed Maturity Plans
\n(FMPs) held for a period of more than twelve months qualified as long term capital
\nasset. The amendment in sub-section (42A) of section 2 of the Act by the Finance
\n(No.2) Act, 2014 changed the period of holding in case of unlisted shares and
\nunits of a mutual fund (other than an equity oriented fund) for their
\nqualification as long term capital asset to more than thirty-six months. As a
\nresult, gains arising out of any investment in the units of FMPs made earlier and
\nsold\/redeemed after 10.07.2014 would be taxed as short-term capital gains if the
\nunit was held for a period of thirty-six months or less.<\/p>\n

2.                        FMPs are closed ended funds having a fixed
\nmaturity date wherein the<\/p>\n

duration of investment is decided
\nupfront. The funds collected by FMPs are invested by the Asset Management
\nCompanies (AMCs) in securities having similar maturity period. To enable the FMPs to
\nqualify as a long-term capital asset, some AMCs administering mutual funds have offered
\nextension of the duration of the FMPs to a date beyond thirty-six months from the date
\nof the original investment by providing to the investor an option of roll-over of
\nFMPs in accordance with the provisions of Regulation 33(4) of the SEBI (Mutual Funds)
\nRegulations, 1996. In this regard representations have been received in the
\nBoard seeking clarification regarding applicability of tax on capital gains in the
\nhands of the unit holder at the time of roll over of FMPs that are closed ended
\nschemes.<\/p>\n

 3.     In this matter the
\nSecurities and Exchange Board of India (SEBI) has informed that Regulation
\n33(4) of the SEBI (Mutual Funds) Regulations, 1996 allows the roll\u00adover of
\nclose-ended schemes. Such regulation provides the following:-<\/p>\n

“(4) A close ended scheme shall be
\nfully redeemed at the end of the maturity period: Provided that a close-ended
\nscheme may be allowed to be rolled over if the purpose, period and other terms
\nof the roll over and all other material details of the scheme including the likely
\ncomposition of assets immediately before the roll over, the net assets and net
\nasset value of the scheme, are disclosed to the unitholders and a copy of the
\nsame has been filed with the Board:<\/p>\n

Provided further that such roll over will be permitted only in the case
\nof those unitholders who express their consent in writing and the unitholders
\nwho do not opt for the roll over or have not given written consent shall be
\nallowed to redeem their holdings in full at net asset value based price.”<\/em><\/p>\n

SEBI has
\nclarified that in case of roll over in accordance with the aforesaid regulation
\nthe scheme remains the same and it does not constitute a different scheme.<\/p>\n

4.      In the case of mutual
\nfunds, the unit of a mutual fund constitutes a capital asset and any sale, exchange
\nor relinquishment of such unit is a ‘transfer’ under clause (47) of section 2
\nof the Act. The roll over in accordance with the aforesaid regulation will not
\namount to transfer as the scheme remains the same. Accordingly, it is hereby
\nclarified that no capital gains will arise at the time of exercise of the
\noption by the investor to continue in the same scheme. The capital gains will,
\nhowever, arise at the time of redemption of the units or opting out of the
\nscheme, as the case may be.<\/p>\n

(Gaurav Kanaujia)<\/p>\n

 Director to the Government of
\nIndia<\/p>\n

 <\/p>\n

 <\/p>\n

Copy to:-<\/p>\n

1. 
\nPS to FM\/ OSD to FM\/ OSD to MoS(R).<\/p>\n

2. 
\nPS to Secretary (Revenue).<\/p>\n

3. 
\nThe Chairperson, Members and all other officers in CBDT of the rank of
\nUnder Secretary and above.<\/p>\n

4. 
\nAll Pr. Chief Commissioners\/ Pr. Director General of Income-tax – with a
\nrequest to circulate amongst all officers in their regions\/ charges.<\/p>\n

5. 
\nPr. DGIT (Systems)\/ Pr. DGIT (Vigilance)\/ Pr. DGIT (Adorn.)\/ Pr. DG
\n(NADT)\/ Pr. DGIT (L&R).<\/p>\n

6. 
\nMedia Co-ordinator and Official spokesperson of CBDT.<\/p>\n

 7. 
\nWeb manager for posting on the departmental website.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Circular No. 6 of 2015 F. No. 133\/39\/2014-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes (TPL Division) 4.      In the case of mutual funds, the unit of a mutual fund constitutes a capital asset and any sale, exchange or relinquishment of such unit is a ‘transfer’ under clause … Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[4],"tags":[135],"class_list":["post-1445","post","type-post","status-publish","format-standard","hentry","category-income-tax","tag-capital-gains"],"yoast_head":"\n