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 mutual fund units inherit donor's acquisition date and may use the grandfathered FMV for LTCG calculation.
The recipient of gifted equity mutual fund units inherits the transferor's cost of acquisition and holding period, enabling long term status based on the original purchase date. Grandfathering applies by permitting the use of the fair market value at the statutory valuation date as the cost of acquisition where that FMV exceeds the original price, thereby reducing taxable long term capital gains under the preferential LTCG regime for equity funds.