They made 2 payouts, on 22/06/2020 and 20/07/2020 for Franklin India Ultra Short Bond Fund - Super Institutional fund
does anyone know how to calculate the tax (long term or short term) for these receipts? I mean what should be the cost of acquisition?
Franklin India Ultra Short Bond Fund - Super Institutional Plan is a debt mutual fund.
Debt mutual funds are taxed as follows:
AA] If it is held for more than 36 months - it will be treated as Long Term. Long Term Capital Gains on debt fund are taxed @ 20% after indexation.
BB] If it held for less than 36 months - it will be treated as Short Term. Short Term Capital Gains are taxable as per the applicable slab rates.
Further, indexation is a method to determine the correct value of the asset after including the effect of inflation. This is done with Cost Inflation Index (https://www.incometaxindia.gov.in/Charts%20%20Tables/Cost-Inflation-Index.htm) laid by the Income Tax Department.
Example : If debt mutual fund was bought in April 2016 Rs 100; and you have sold it when the value is Rs 180 in Dec 2020. The holding period is more than 36 months.
Cost Inflation Index FY 2016-17 = 264
Cost Inflation Index FY 2020-21 = 301
Going by absolute values - the gain is Rs 80. However, when inflation is factored; the cost will be
114 (100/264*301) and gain works out to Rs 66.
And you need to pay 20% tax on Rs 66.