Capital Gain Tax

In its simplest definitions capital gain/ (Loss) is the difference of Selling Price and
Buying Price of an Asset. If the asset is sold than Gain/ (Loss) is said to be realized

Capital gain tax is only applicable on realized capital gains. Currently the following
tax rate applies to different realized holding period returns (holding period return is
the return during the period an asset is held)

• For a holding period less than or equal to six months (182 days) , the capital
gains are subject to a tax rate of 10%

• For a holding period greater than six months (182 days) but less than one
year (365 days), the capital gains are subject to a tax rate of 7.5%

• For a holding period greater one year (365 days), there is no capital gain tax
applicability.

Example of Capital Gain Tax Calculation

On Jan 1st 2011, Mr. A purchased 1000 Units of PICIC Cash Fund @100 per units.

On March 31st 2011, the NAV of PICIC Cash Fund was 102.56 per unit .The Company
decided to distribute a bonus dividend of 2.56 per 100 units. The Ex-Bonus NAV of
the Fund came out to be 100 per unit. The investor redeemed his all investments on
Ex Bonus NAV.

Capital gain on March 31st 2011 (pre-Income Tax Notification)

As the company issued bonus, the number of units of the investor increased by 2.56
units. As per the previous notification the cost of units would be now

= (Units Purchased X Purchase Price)/ (Units purchased + bonus Units)

= (100*100)/(100+2.56)

New Cost is equal to 97.50

Capital Gain= (redemption Price-New Cost of purchase) X (# of Units

Redeemed)

Capital Gain= (100-97.50)*100

Capital Gain= 250

Captal gain Tax= 250*10%= 25

Capital gain on March 31st 2011 (Post-Income Tax Notification)

As the company issued bonus, the number of units of the investor increased by 2.56
units. As per the latest notification the bonus units will be assigned ex bonus NAV as
cost of bonus .The new Cost would be.

= (Units Purchased X Purchase Price)+(Bonus Units X Bonus Unit Costs) / (Units

purchased + bonus Units)

= (100*100) + (2.56*100) / (100+2.56)

New cost will remain=100

Capital Gain= (100-100)*100

Capital Gain= 0