The difference between the sale consideration (selling price) and the cost of acquisition (purchase price) of the asset is called capital gain. If the investor sells his units and earns capital gains he is liable to pay capital gains tax.
Capital gains are of two types:
Short Term Capital Gains
Short Term Capital Gain
The holding period of the Mutual Fund units is less than or equal to 12 months from the date of allotment of units then short term capital gains is applicable. On Short Term capital gains no Indexation benefit is applicable.
Tax and TDS Rate (excluding surcharge)
For Resident Indians and Domestic Companies the Gain will be added to the total income of the Investor and taxed at the marginal rate of tax. No TDS.
For NRIs 30 per cent TDS from the gain.
Long Term Capital Gain
The holding period of Mutual Fund units is more than 12 months from the date of allotment of units.
On Long Term capital gains Indexation benefit is applicable.
Tax and TDS Rate (excluding surcharge)
For Resident Indians and Domestic Companies the Gain will be taxed
A) at 20 per cent with indexation benefit or
B) B) at 10 per cent without indexation benefit, whichever is lower. No TDS.
For NRIs 20 per cent TDS from the Gain
Surcharge
For Resident Indians if the Gain exceeds Rs 8.5 lakhs, surcharge is payable by investors @ 10 per cent.
For domestic Companies it is payable by the investor @ 2.5 per cent.
NRIs: If the Gain from the Fund exceeds Rs 8.5 lakhs, surcharge is deducted at source @ 2.5 per cent.
Indexation
Indexation means that the purchase price is marked up by an inflation index resulting in lower capital gains and hence lower tax.
Inflation index = Inflation index for the year of transfer / Inflation index for the year of acquisition
