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Capital Gain/Business Income Query

Rakesh Rao (CA Final Student) (408 Points)

14 October 2019

When Mutual fund schemes were merged during Apr-Jun 2018 the unrealised gains were not considered as Transfer u/s 47(xix). However the same benefit is available if such Gain otherwise is shown by the assessee as Capital Gain.

Is there similar benefit available if the assessee shows such gains as Income from Business?

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6 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160327 Points)
Replied 14 October 2019

No.

Firstly, its not realized gain, and hence taxable whenever redeemed ...

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Suresh Thiyagarajan (Student) (3986 Points)
Replied 14 October 2019

1. As per sec 47(xix) when any capital asset in the nature of units of MF, allotment is made as a result of any consolidation plan of mutual fund scheme, the same is not considered as a transfer for the purpose of determining capital gain.
2. If you are running a business of buying and selling mutual funds on which the gain will be charged to tax under the head PGBP. The same benefit will not be available.
3. Moreover, as explained by the expert above it is only at the time of redemption, the gain arising on MF will be taxable. Otherwise, its an unrealized gain and only book entries will be passed.
Please correct me if the above solution has an alternative view.

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Rakesh Rao (CA Final Student) (408 Points)
Replied 14 October 2019

Thank you for the answers.. I agree with both views..

Book entries have been passed as Gain. But, while preparing Income computation, how is the Income to be deducted? Under which section? As the same needs to be shown in ITR as well, Less from Profit shown in P&L.

Kapadia Pravin (17249 Points)
Replied 14 October 2019

The merger of a mutual fund scheme is not considered as transfer u/s 47(xix) and no capital gain or loss at the merger time. it will arise at the time of Sale /Repurchase/Redemption of units. The date of acquisition of units will be date when original units were acquired and not the date when new units alloted upon merger.

The same way if units are held as inventory , no profit or gain arises at merger time. The cost of units value will remain same. By book entry only scheme name and unit holding will change.
The profit or loss arises at the time of Sale/Repurchase/Redemption of units.

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Suresh Thiyagarajan (Student) (3986 Points)
Replied 15 October 2019

1. You have just passed book entries as I have mentioned it will come within the tax bracket only when it is a realized gain.
2. Book entries are passed just to have a projection that in case if the MF's are sold at the reporting period ending what would be the gain/loss.
3. The above entires will not be included while computing your tax.
4. Gain or loss will be included in your return only when the same is redeemed/ sold during the year.
Please correct me if the above solution has an alternative view.

1 Like