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Ramalingam Kalirajan |2770 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Apr 30, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Nov 06, 2023Hindi

Sir, I had invested 4 lakhs in equity Mutual funds (Regular plan, growth option) through an agent in 2013. Presently, their total value is 13 Lakhs. I don’t plan to redeem them for the next 7-10 years. Should I convert them to Direct option or continue them as it is? I am asking as if I convert them into Direct plan, I will have to pay LTCG on the profit. Is there any way to avoid / mitigate the LTCG tax?

Ans: Converting your regular plan mutual funds to direct plans can potentially save you on expense ratios in the long term, resulting in higher returns. However, you're right that switching may trigger LTCG tax implications.

One way to mitigate LTCG tax is by staggering your conversions over multiple financial years to stay within the tax exemption limit of 1 lakh per annum. Another option is to utilize the grandfathering clause, which exempts capital gains accrued till January 31, 2018, from taxation.

Consulting a tax advisor or financial planner can provide personalized guidance based on your specific financial situation and tax liability.

Asked on - May 02, 2024 | Answered on May 02, 2024

Thanks for your reply. I am unaware of the grandfathering clause to gain tax exemption in this regard. Kindly provide details on the same. The details will help me take up the matter with my financial advisor. Thank you again.

Ans: Grandfathering clauses are typically used for policy changes, where existing situations are exempt from the new rules.

However, there have been instances of grandfathering clauses related to capital gains tax in India. For example, the introduction of Long-Term Capital Gains (LTCG) tax on stock market investments in the 2018 budget included a grandfathering clause. This clause protected investors who had purchased shares before a specific date (January 31, 2018) from the new LTCG tax on any gains made on those shares.

It's possible there might be grandfathering clauses related to other tax exemptions, but they would be specific situations or older tax regimes.

Here's what you can do to discuss tax exemptions with your financial advisor:

Explain your situation: Briefly tell your advisor you're interested in exploring tax exemptions that might apply to your specific financial situation.
Bring relevant documents: If you have any investment documents or details related to potential tax exemptions, take them along for discussion.
Ask about current tax benefits: Inquire about any current tax benefits you might be eligible for based on your income, investments, or life stage.
Discuss tax planning strategies: Explore different strategies your advisor might recommend to minimize your tax burden and maximize your after-tax income.
By consulting your financial advisor, you can gain personalized guidance on tax exemptions and optimize your financial plan.

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