How to calculate your capital gains for debt mutual funds

Debt mutual funds provide investors with an honest choice to get stable returns. At an equivalent time, these funds are liquid and you'll withdraw your money any time after you begin. However, at the time of redemption, you've got to remember the capital gains tax on the gains you earn. Capital gains ask the difference between your redemption value and therefore the initial investment. Here is how you'll do this.

Step 1: remove your account and check if you were invested within the dividend or the expansion plan of a fund. just in case of dividend plan, the surplus is paid out as a dividend, which is taxed as a dividend distribution tax at an efficient rate of 29.12 per cent. Once the dividend is paid, the internet asset value falls to the extent of the payout. However, Budget 2020 has removed the dividend distribution tax and effective April 1, 2020, dividends are going to be taxed within the hands of the investor at his applicable slab rate.

Due to the autumn, at the time of redemption, the worth might not be quite the initial investment. Hence, sometimes capital gains are not relevant in dividend options. These are more relevant just in case of the expansion option, where value earned gets accumulated and added to your net asset value.

Step 2: Once you've got ascertained the sort of plan you were invested in, calculate the number of days you've got been invested within the fund. In your account check, the beginning or purchase date then check the date on which you sold the units. The difference between the two dates is what you would like to calculate. Anything quite 36 months qualifies for long-term capital gains, else it's short-term capital gains.

Step 3: From your redemption value, minus the initial investment to determine the quantity of gain. If it's short-term financial gain, your tax is calculated as per the tax rate applicable to you. If it's long-term financial gain, the rate is 20 per cent with cost indexation. Indexation adjusts your cost of shopping for inflation, thereby making it higher.

This higher adjusted cost is then deducted from the redemption value to reach the capital gains, which are taxed at 20 per cent. it's further subject to a surcharge (if applicable) and cess.