1.2.2 Indexation for Capital Gains Tax

This topic explains the indexation for Capital Gains Tax.

The unit holder may opt for indexation to be applicable to capital gains computations. If so, you can indicate it in the unit holder account profile.

The capital gains from a redeemed or switched transaction is computed in the system as the difference between the buying price of the subscription transaction that is redeemed, and the selling price of the redemption or switched transaction.

Indexation involves a certain factor being applied on the capital gains, so as to arrive at the basis amount on which the capital gains tax is computed.

The basis, upon which the capital gains tax is applied, is computed using the empirical expressions:

For capital gains loads on gross amount, as specified in the Fund Load Setup,

CG = UA(PL - (UAC*(PI/AI))

For capital gains loads on net amount, as specified in the Fund Load Setup,

CG = UA(RTBP - (ATBP*(PI/AI))

Where,

• CG represents the income or capital gains (after indexation) based on which the capital gains tax is computed.
• UA represents the number of allotted redemption units.
• PL represents the redemption price inclusive of loads.
• UAC represents the acquisition cost of each unit that is being redeemed.
• PI represents the indexation value for the present year.
• AI represents the indexation value for the year of acquisition.
• ATBP represents the base price of the transaction through which the redeemed units were first acquired through a subscription or IPO.
• RTBP represents the base price of the redemption transaction through which the units.