I want to know the tax calculation of mutual fund. How the tax calculated and what is capital gain. Sunil Prajapati

The mutual fund transaction by any one can bring two kinds of income

1. 1. Capital Gains or loss if you are showing bought units as investment
2. 2. Trading gains if you are actually doing regular buy or sell at much faster frequency.

1. Capital Gains

When you buy , the mutual fund allots you units and when you sell the mutual fund company call it redemption, which mean buyback from you on the NAV (Net Asset Value  ). So there may be gains or loss when you actually do the redemption. The capital Gains can be two types having two rates under I T Act. These are Long term Gains or Short Term Gains

Long Term Gains

If you held the units for more than a year, gains on such units redemption is tax free u/s 10(38) of the I T Act.

Short term gains

When the units are sold (redemption ) within one year of being held by the investor , it becomes short term gains or loss . The Short term gains are taxed @ 15 % u/s 111A of the I T Act.

The gains or loss is very easily computed as under

   Redemption price  paid by Mutual Fund Company xxxxxx

Less

     Cost of acquisition of those units                   XXXXX

                

2. Trading Income

Like shares, many people also trades in mutual funds and shows the buy sale as stock-in-trade . In that case  gains or losses are taxed as Business Income and taxed at normal rate .