Whether the income from the Mutual fund (Equity Related) is taxable, if the same is sold after 1 year.?

I purchased Mutual funds in year Apr, 2005. I sold out them in Aug 2006. I gained profit from them. Whether the income gained will be taxable? and is it required to include them in the form ITR-2? If instead of profit, i made a loss, wht would be the case?

I'm not familiar with form ITR-2...what country are you in?

I can only speak to U.S. tax law, and that says that, in a NON-retirement account, you have two main tax liabilities:

a) Every year, you must pay taxes on all distributions (dividend and capital gains) made by the fund, EVEN if you reinvest those distributions.
b) When you sell your shares, you must pay taxes on any gains in the share value from when you bought. If you lost money, you may write off that loss, but only against capital gains you got from selling other investment(s). If you have no offsetting gains, you're out of luck.

I hope that helps.

I am presuming you are in India. Your sale of mutual fund units comes under long term capital gains. Under Section 10(38) of the Income tax Act, long term capital gains arising from transfer of a unit of mutual fund is exempt from tax if the said transaction is undertaken after October 1, 2004 and the securities transaction tax is paid to the appropriate authority. This makes long-term capital gains on equity-oriented funds exempt from tax from assessment year 2005-06 onwards.
Your profit will not be taxable if you have paid the securities transaction tax although you will have to include the transaction in your tax return. If you made a loss on this transaction, you would be able to set off the loss against other heads of income such as salary, income from other sources etc thereby reducing your overall tax liability for the year