LTCG Grandfathered Applicability to receiver of gifted mutual fund units

[Sthavar]

Dear Experts,

My son Gifted equity mutual Funds to me on 15 October, 2025, which he bought on 1st January 2010.

When I redeem the mutual fund units, will I get the advantage of grandfathered cost while calculating my LTCG?

Thanks in advance

Sincerely,

 

[Ryan Vaz]

Yes, you are eligible for the grandfathering benefit on the Long-Term Capital Gains (LTCG) calculation, as you step into the shoes of the previous owner (your son) regarding the cost and period of holding.

Applicable Law

• Section 49(1): Deems the cost of acquisition of the gift to be the cost to the previous owner.
• Section 2(42A): Includes the holding period of the previous owner in determining whether the asset is Long-Term or Short-Term.
• Section 55(2)(ac): Provides the mechanism for grandfathering the Cost of Acquisition (COA) for equity shares/funds acquired before 1st February 2018.
• Section 112A: Governs the tax rate (12.5%) and exemption limit (Rs. 1.25 Lakhs) for LTCG on equity mutual funds.

Short Practical Answer Even though you received the gift in 2025, your "Date of Acquisition" for tax purposes is deemed to be 1st January 2010 (your sons purchase date). Therefore, you are entitled to use the Fair Market Value (FMV) as of 31st January 2018 as your cost of acquisition if it is higher than the original purchase price. This significantly lowers your taxable capital gains.

AI Summary

Gifted equity mutual funds qualify for LTCG grandfathering, recipient steps into previous owner's shoes u/ss 49(1), 2(42A), 55(2)(ac), 112A A taxpayer received equity mutual fund units as a gift from a relative in 2025, where the original acquisition by the relative occurred in 2010. The query concerns whether the recipient can claim the grandfathering benefit for long-term capital gains (LTCG) on redemption. The response clarifies that under sections 49(1) and 2(42A) of the Income-tax Act, the recipient steps into the shoes of the previous owner for cost and holding period, making the deemed acquisition date 2010. Accordingly, under sections 55(2)(ac) and 112A, the recipient may adopt the fair market value as of 31 January 2018 as cost of acquisition for LTCG computation on equity mutual funds.