The Indian government has introduced a major relief for investors: mutual fund gifting is now tax free for the giver. This new rule, effective FY25, allows investors to gift units of mutual funds without triggering tax at the time of gifting. The move is aimed at making wealth transfer easier and more transparent for families while boosting participation in financial markets.
Under the updated rule, gifting mutual fund units will not be treated as a sale. This means no capital gains tax applies to the giver during the transfer. The tax liability, if any, arises only later — when the recipient sells the units.
What Has Changed?
Previously, transferring mutual fund units as a gift could create confusion over taxability. In many cases, it was unclear whether the transfer would count as a taxable event. The new clarification makes things simple:
- Gifts of mutual fund units are 100% tax-free for the giver.
- The receiver pays tax only on future capital gains when they sell the units.
- If the recipient is a listed “relative”, even the gift itself is exempt under Section 56(2)(x).
This clarity encourages smooth wealth transfer within families and reduces the need for liquidating investments just to pass them on.
Why This Matters for Investors
✔ Easier Family Wealth Planning
Parents can now gift long-term mutual fund investments to children without worrying about immediate taxes.
✔ No Capital Gains Triggered
Since gifting is not considered a “transfer”, there is no capital gains tax for the giver.
✔ Receiver Gets Indexation Benefits
When the recipient eventually sells the units, their capital gains will be calculated using the original purchase date and cost — a big advantage.
✔ Ideal for Long-Term Financial Goals
Gifting mutual funds is now a smart option for:
- Children’s education
- Marriage planning
- Retirement gifts
- Intergenerational wealth transfer
Is It Always Tax-Free?
While gifting is tax-free for the giver, the receiver must follow income-tax rules:
If the recipient is a “relative”
- The gift is fully tax-free.
- Capital gains tax applies only when the units are sold.
If the recipient is not a relative
- The value of the gift may be taxable if it exceeds ₹50,000.
- Normal capital gains apply when they sell the units.
How Mutual Fund Gifting Works
Gifting can be done in two ways:
1. Through DEMAT (for ETF or DEMAT-held mutual funds)
Transfer from one DEMAT account to another.
2. Through folio-to-folio transfer
AMC allows transfer of units after necessary documentation.
This makes it simple for families to plan financial goals across generations.
Why This Policy Was Introduced
The government aims to:
- Promote financial investments over physical assets
- Encourage long-term mutual fund participation
- Simplify taxation rules and reduce litigation
Should You Consider Gifting Mutual Funds?
Absolutely — especially when:
- You want to support a family member’s financial goals
- You want tax-efficient wealth transfer
- You want to gift something more valuable than cash
Mutual fund gifts are long-lasting and continue compounding long after the event.
