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Only gains in MFs are taxed, not entire redemption amount

NAV on date of sale has to be subtracted from the NAV on the purchase dates to determine the gains

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If I redeem my mutual fund one year after investing, will the entire redemption amount be added to my income and taxed? Or will only the gains received be added to my income? Also how will SIPs be taxed? Will the mutual fund calculate the tax amount or will I have to calculate it? 
– Vivek Mohile

Redemption of mutual funds attracts capital gains which are computed by subtracting from the sale consideration, the cost of acquisition and the expenses incurred on transfer, these gains are added to the total income of the assessee. Only the gains are required to be added and not the entire redemption amount. Tax rate and indexation benefit shall depend on the type of MF and its period of holding. In case of equity funds, holding period of 12 months or more is regarded as long term and in case of debt funds, a holding period of 36 months or more is regarded as long term. Whereas, Long Term Capital Gain (LTCG) on equity oriented funds exceeding Rs 1 lakh, shall be taxed at 10% without indexation, provided Security Transaction Tax (STT) has been paid thereon; LTCG on debt funds shall attract 20% tax, after indexation. Moreover, Short Term Capital Gain (STCG) on equity funds shall attract tax at the rate of 15%, subject to payment of STT, however, STCG on debt fund shall be taxed at the slab rates applicable to you.

You shall be required to compute the tax on your investment yourself, however, details like cost of acquisition and period of holding may be sought from the mutual fund.

Gains made from SIPs are taxed as per the type of MF (equity/debt) and the period of holding. For any redemption, first-in-first-out rule is required to be followed, that is, units bought first are the units that are sold first. For each unit sold, equivalent purchase units and their corresponding dates have to be determined. The purchase dates shall be used to determine whether the gains are long-term or short-term. NAV on date of sale has to be subtracted from the NAV on the purchase dates to determine the gains.

Chirag Nangia, Director, Nangia Advisors LLP

Send your queries related to personal tax to personalfinance@dnaindia.net.

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