Many people buy/sell shares, do intraday trading, take Swing positions or Options trading, unaware of the capital gains tax on shares. Are you also unsure about the Capital Gains tax on shares? then don’t look further I got it covered.
WHAT ARE CAPITAL GAINS?
It can be defined as the profit or extra money made by selling or transfer of various Assets/Properties, it can be Shares, gold, Fixed Deposits, Mutual Funds, Movable and Immovable Properties etc.
Every income is taxed whether it be the salary, rental, or business income. Each Assets are tax at different rates based on duration it’s held for. In here we’ll specifically talk about capital gain tax on shares. If you want learn about tax on other assets then check out other Blogs.
cOMPARISION OF SHORT-TERM & LONG TERM CAPITAL GAINS
| SHORT TERM CAPITAL GAIN (STCG) | LONG TERM CAPITAL GAIN (LTCG) |
|---|---|
| Assets like shares(equity or preference) which are listed in a recognized stock exchange in india, units of equity oriented mutual funds, listed security like debentures & government securities, units of UTI and Zero coupon bonds held by taxpayer for a period of not more than 12 months | Assets like shares(equity or preference) which are listed in a recognized stock exchange in india, units of equity oriented mutual funds, listed security like debentures & government securities, units of UTI and Zero coupon bonds held by taxpayer for a period of more than 12 months |
| Note: Period of holding to be considered as not more than 24 months in case of unlisted shares of a company. | Note: Period of holding to be considered as more than 24 months in case of unlisted shares of a company. |
| STCG covered under section 111A is charged to tax @15% (plus surcharge and cess as applicable ). STCG other than covered under section 111A is charged to tax at normal rate of tax on the basis of the total taxable income of the taxpayer. Tax slab for individuals below age of 60 years for are as below Nil up to income of Rs. 2,50,0005% for income above Rs. 2,50,000 up to Rs. 5,00,00020% for income above Rs. 5,00,000 up to Rs. 10,00,00030% for income above Rs. 10,00,000. | LTCG under section 112A is charged to tax @ 10% (plus surcharge and cess as applicable) for Long-term capital gains arising from sale of listed securities exceeds Rs.1,00,000/- LTCG other than covered under section 111A 1) Do not avail of the benefit of indexation; the capital gain so computed is charged to tax @ 10% (plus surcharge and cess as applicable). Or else 2) Avail the indexation benefits with capital gains so computed will be charged at normal tax rate of 20% (plus surcharge and cess as applicable). Note: lower tax liability of above( 1.&2.) is to be be selected. |
HOW ARE SHARES TAXED?
Based on holding duration it categorized as Short Term Capital Gains (STCG) and Long Term Capital Gains (LTCG)
TAX ON SHORT-TERM CAPITAL GAINS
For the purpose of determination of tax rate, short-term capital gains are classified as follows :
Short-term capital gains covered under section 111A taxed at 15%.
- STCG a rising on sale of equity shares listed in recognized stock exchange, which is chargeable to STT (security transaction tax).
- STCG arising on sale of units of equity-oriented mutual fund sold through a recognized stock exchange which is chargeable to STT.
- STCG arising on sale of equity shares or units of equity-oriented mutual fund through a recognized stock exchange located in any International Financial Services Centre and consideration is paid or payable in foreign currency even if transaction of sale is not chargeable to securities transaction tax (STT).
Short-term capital gains other than covered under section 111A taxed at normal tax rate.
- STCG arising on sale of equity shares other than through a recognized stock exchange.
- STCG arising on sale of units of non-equity oriented mutual fund (debt oriented mutual funds).
- STCG on debentures, bonds and Government securities.
TAX ON LONG-TERM CAPITAL GAINS
The benefit of charging long-term capital gain @ 10% is available only in following cases:
1) Long-term capital gains arising from sale of listed securities and it exceeds Rs.1,00,000 (Section 112A).
2) Long-term capital gains arising from transfer of any of the following asset:
a) Any security which is listed in a recognized stock exchange in India,
b) Any unit of UTI or mutual fund (whether listed or not),
c) Zero coupon bonds
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