Can I gift MFs without attracting capital gains tax?

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Are mutual funds considered capital assets? Can these be gifted without attracting any capital gains tax? My mutual funds are held in a statement of account, not demat account. From what I understand, mutual fund transfers are only allowed on death (transmission). Otherwise, these must be sold, taxed, and gifted as cash. Please clarify if this is true.

Amit Maheshwari Tax Partner, AKM Global: As per the provisions of Section 2(14) of the Income Tax Act, 1961, a capital asset includes ‘property of any kind’ held by an assessee, whether or not it is connected with his business or profession. This definition encompasses both movable and immovable properties, and judicial interpretations have broadly recognised any transferable asset with value as ‘property’ under the Act. Accordingly, mutual fund units qualify as capital assets. As per the provisions of Section 47 of the Act, any capital asset transferred by an individual or HUF as a gift, via a will or inheritance shall not be considered as transfer. Since mutual fund units are considered capital assets, giving them as gift will not be treated as transfer and, therefore, you will not incur any tax liability. Therefore, mutual fund units can be gifted during the lifetime of the holder, not only on death. However, as per the provisions of Section 56(2)(x) of the Act, if a person receives mutual fund units without any consideration and their fair market value (FMV) exceeds Rs 50,000, the entire FMV is taxable as ‘Income from other sources’ in the hands of the recipient. If the mutual fund units are received from a ‘relative’ as defined under the Act, this would remain tax-exempt in the hands of the recipient. The same provisions shall apply to an HUF in a similar situation.

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My father passed away in November 2020. He had mentioned owning some banking stocks that he wanted to gift to my son, but we couldn’t complete the transfer. I have no details about his demat or trading account. How can I find and transfer these stocks? We have his death and legal heir certificates. My mother and sibling are alive.

Rajat Dutta Founder & Initiator, Inheritance Needs Services: Since you don’t have the documents confirming your father’s stock holdings, start by checking his last residence for dividend warrants or KYC update requests from banks. Review his last two years’ bank statements for dividend credits. If he had a demat account, look for holding statements from NSDL/CDSL via e-mail or post. If no leads emerge, visit the IEPF website to search for unclaimed shares and dividends. Once you find details, contact the RTA/banks and follow Sebi’s procedures for share transmission. The required documents may include affidavits, indemnitie, and a succession certificate or probate, depending on the case.

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