Capital gain tax on shares
Long Term Capital Gains arising on the sale of Shares and Mutual Funds are exempted under Section 10(38) and Short Term Capital Gains arising on the sale of Shares and Mutual Funds are taxed @ 15% under Section 111A provided that :-
- The transaction of sale is entered into on or after 1-10-2004
- Such transaction is chargeable to Securities Transaction Tax (STT) i.e. the sale transaction is through recognised stock exchange or sale of units of equity oriented fund is to a Mutual Fund.
Short Term Capital Gains on sale of Shares and Mutual Funds u/s 111A
Tax on short term capital gains is levied at a flat rate of 15%under Section 111A if the above mentioned 2 conditions are satisfied. However, where the income of the individual tax payer other than the short term capital gains is less than the minimum amount exempted from tax as per Slab Rates i.e. Rs. 200000, then the short term capital gains shall be reduced by an amount by which the other incomes fall short of Rs. 200000.
For example: In case of an individual, if the short term capital gains are Rs 250000 and other incomes are Rs. 80000 his total income becomes Rs. 3,30,000. In such a case, no tax would be levied upto Rs. 2,00,000 and the amount that is above 2,00,000 i.e. Rs. 1,30,000 would be taxed at a flat rate of 15%.
Short Term Capital Loss is arising from the sale of shares/mutual funds is allowed to be set-off against any other Long Term/Short Term Capital Gain.
Long Term Capital Gains on the sale of Shares and Mutual Funds u/s 10(38)
If the above mentioned conditions are satisfied, the Long Term Capital Gains are exempted in the hands of the taxpayer under Section 10(38). However, these gains would be required to be disclosed at the time of filing of Income Tax Returns.
It may be noted that since Long Term Capital Gains are exempted, Long Term Capital Loss shall have no tax treatment and such Long Term Capital Loss can neither be set-off against any income nor be carried forward.
- The period of holding is the period from the date of purchase of the asset till the date of sale of the asset. For the seller, the date of sale of 1 day before the actual sale and for the buyer, the date of purchase is actual purchase date
- In case the shares/mutual funds are purchased on different dates at different prices, it would be assumed that the shares that were purchased first would also be sold first and the Cost of Acquisition would be ascertained on FIFO basis. (Circular No. 768 dated 24th June 1998)
- The Security Transaction Tax (STT) levied on the sale of shares and units of equity oriented mutual fund shall not be allowed as deduction in computing the income chargeable under the head “Capital Gains”. In other words, the STT paid shall neither form a part of the cost in case of purchase nor be allowed as deduction as expense of transfer in case of sale of such equity shares and units [Fifth Proviso to Section 48]
- Cost of Acquisition of Bonus Shares is deemed to be Nil.
- Tax on Sale of Futures and Options can either be taxed under head “Capital Gains” or under head “Profits from Business & Profession” depending on case to case basis.
Capital gain tax on shares
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