Debt/Liquid Fund Tax Calculation.

POSTED BY Bond Bhai ON May 31, 2013 11:23 am COMMENTS (3)

Assuming that one is investing in Liquid Funds/Debt Funds and Say does a STP into a Equity MF, how would the Tax be calculated?

 

Ex: 

 

Month 1 – Invest 1Lakh in Liquid Fund – NAV 100, 1000Units

Month 2 – STP 10K into Eq Fund – Exit NAV 120, 84 Units

Month 3 – STP 10K into Eq Fund – Exit NAV 110, 90Units

Month 4 – STP 10K into Eq Fund – Exit NAV 90, 111 Units

Month 5 – STP 10K into Eq Fund – Exit NAV 80, 125 Units

Month 13 – STP 10K into Eq Fund – Exit NAV 120, 84 Units

Month 14 – STP 10K into Eq Fund – Exit NAV 120, 84Units

How will the Tax be calculated in this case? Meaning how to calculate the Gain/Loss? If investing in Lumpsum and exiting in Lumpsum, its pretty clear. Get the Difference using NAVs and Units. Is it the same way here as well? 

 

For Month 2, the Tax would be : 

Difference of (Sell NAV – Buy NAV) * No. Of units Sold = 

(120 – 100)*84 = 1680, so 20% Tax = 336Rs.

 

For Month 5, the Tax would be : 

Difference of (Sell NAV – Buy NAV) * No. Of units Sold = 

(120 – 100)*84 = -1680, so i can show this as a loss?

 

similarly for others as well, except after Month 13, the Tax rate will be 20% with indexation etc.

 

Is this correct? Also, when do people typically start the STP? Because, if the STP is started soon after one invests in a DEbt/Liquid fund there might be Exit load that is applicable as well.

3 replies on this article “Debt/Liquid Fund Tax Calculation.”

  1. bemoneyaware says:

    In a Systematic Transfer Plan (STP), a fixed amount is switched from one scheme to another at regular intervals An investor instructs the mutual fund to transfer a small amount from typically debt scheme to an equity scheme every single month at a particular date. So it is a SWP from the debt fund but a SIP into the equity one.
    STP works on the principle of redemption and fresh investment so Cost and tax involved are as follows:
    While you exit (i.e. withdraw) from one scheme into another, the exit loads would be applicable if your transaction falls under the criteria which enforces you to pay the same.
    As you are switching from debt to equity fund The Securities Transaction Tax (STT) is NOT levied.
    the tax implication would be same as capital gains (short-term or long-term) on the redemption of equity or debt funds.

  2. Correction: Read 20.3% as 20.6%

  3. Month 1 – Invest 1Lakh in Liquid Fund – NAV 100, 1000Units

    Month 2 – STP 10K into Eq Fund – Exit NAV 120, 84 Units
    –> gain = 84X(120-100) -add to income and pay as per slab

    Month 3 – STP 10K into Eq Fund – Exit NAV 110, 90Units –> 90X(110-100)
    -add to income and pay as per slab

    Month 4 – STP 10K into Eq Fund – Exit NAV 90, 111 Units
    ==> loss = 111*(90-100) Show as loss in ITR2 under ‘capital gains’

    Month 13 – STP 10K into Eq Fund – Exit NAV 120, 84 Units
    Gain 84X(120-100) pay 10.3% as tax (or 20.3% considering cost price index)
    Month 14 – STP 10K into Eq Fund – Exit NAV 120, 84Units
    pay 10.3% as tax

    So yes losses can be declared in ITR2

    For a long term goal 1 lakhs is not really a lump sum amount. Dont waste your time doing a STP from debt to equity fund. Just buy from SB acc over a couple of week or even in one-shot.

    Historcially STP is not really effective See:

    http://freefincal.wordpress.com/2013/04/21/comprehensive-mutual-fund-investment-mode-comparator/

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