Gifting Mutual Funds in India: New SEBI
Rules for SOA Unit Transfers & Tax
Savings

Transfer of assets (investments) through gift, will/inheritance is a complex part in general. And the mutual fund was no exception.

Up until now, only demat-held mutual fund units could be gifted or transferred. Hence, it requires investors to redeem and repurchase SOA-based shares, which results in capital gains tax.

However, a recently issued regulation from the Securities and Exchange Board of India (SEBI) makes it easier to transfer mutual fund units, giving investors substantial tax savings.

What Has Been Modified by SEBI's New Regulations?

A major challenge for investors was the inability to gift or transfer mutual fund units held in statement of account (SOA) form in the past. The only option to carry out a gift was to sell the units and buy them again in the recipient's name, which led to additional transaction expenses, exit load, and capital gains tax.

By enabling SOA-based units to be transferred similarly to demat units, SEBI's latest action eliminates this challenge and ensures investors' freedom.

Investors can now transfer units directly without liquidation under the new framework, whether through joint holding modifications, inheritance, or a will. By lowering needless tax outflows and simplifying inheritance planning, this legislation is anticipated to help millions of mutual fund investors.

With the new online process, transfers can be done in a few clicks using OTP verification.

What are the Tax Benefits for Investors and Families?

Strategic tax planning among families is made possible by the ability to transfer mutual fund units without redemption. A family member with low to no taxable income, for instance, may receive units from an investor in a higher tax rate.

Investors with a high tax bracket can transfer a part of their mutual fund corpus to adult family members with a low-income tax bracket, and this can significantly cut future tax on redemptions.

Gains on gifting units are essentially tax-free under the new regime, as people with income up to Rs. 12 lakhs are eligible for a complete tax refund under Section 87A of the Income Tax Act. Gains from debt funds and other mutual fund returns can now be optimized for tax efficiency without requiring complicated restructuring, thanks to this rule.

Why This Change in Rules Matters?

After being discussed since April, the decision has already been put into practice, with multiple cases being carried out in recent weeks. Giving mutual funds was formerly practically difficult without paying taxes, even though it was theoretically allowed under income-tax regulations.

It was costly and time-consuming for investors to redeem units, pay capital gains tax, and repurchase them in the recipient's name.

By removing these inefficiencies, SEBI's action makes mutual fund inheritance and gifting a smooth process for all parties involved.

Conclusion

The regulation change made by SEBI is a big step in the direction of mutual fund industry changes that will benefit investors. The regulator has made estate planning easier and lowered tax obligations for millions of investors by permitting transfers of both demat and SOA-based units.

With no need to worry about unnecessary tax implications/expenses, such as exit loads, this adjustment is anticipated to encourage more families to use mutual funds as a long-term wealth-building strategy. The new structure may change inheritance and gifting customs in India's mutual fund industry as knowledge rises.