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Short-term gains on MF units form part of income

I have made short-term capital gains on sale of units in mutual funds as I wanted to realise the higher values prevailing for the same within a year of acquisition.

In your answer in this column dated June 27, 2005 you had stated that long-term capital gains need not form part of income taxable under the Income-tax Act.

Should it apply for short-term capital gains as well?

Long-term capital gains on sale of listed shares and securities, including units sold in a stock exchange on which securities transaction tax has been paid, would be exempted under Sec. 10(38). There is no such exemption for short-term capital gains, which will be subject to tax at 10 per cent under Sec. 111A of the Act, so that they form part of the total income of the year. If the total income, including short-term capital gains, exceeds the limit eligible for exemption, liability cannot be avoided.

The only consolation is that the rate of tax on such short-term capital gains, where they arise out of a transaction which suffers securities transaction tax, will be only 10 per cent.

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