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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Taxation

Ms. Kavita redeems units of an equity-oriented mutual fund held for 18 months and earns a long-term capital gain of Rs 1,60,000 in the financial year, with no other capital gains. Assuming the long-term capital gains tax rate of 12.5% on gains above an exemption limit of Rs 1,25,000, what is the tax (before surcharge and cess)?

The tax is Rs 4,375. The gain above the Rs 1,25,000 exemption is Rs 35,000, and 12.5% of that equals Rs 4,375. Charging tax on the entire Rs 1,60,000 gain would be wrong because the exemption limit applies first, before surcharge and cess.

  1. ARs 20,000
  2. BRs 4,375Correct
  3. CRs 35,000
  4. DRs 0

Explanation

Taxable gain = 1,60,000 - 1,25,000 = 35,000. Tax = 12.5% x 35,000 = Rs 4,375. Applying the rate to the whole gain gives Rs 20,000, which is wrong because the exemption limit is ignored.

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