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Long-term capital gains :-If shares are held by the tax payer for more than 12 months, then gains arising from their sale/transfer are treated as long term capital gains. If the period of holding is lower, then such gain is treated as short term capital gains.

Long term capital gains arising from the sale of shares listed on a stock exchange in India on which Security Transaction Tax (STT) is paid are not subject to tax.

While short term capital gains arising in case of listed shares on which STT is paid are subject to tax at a concessional rate of 15% plus education cess.

In case of unlisted shares, the long term capital gains are taxed at a concessional rate of 20% plus education cess. While the short-term capital gains are taxed at the applicable rate i.e. as per the slab rate applicable to the individuals.

As per the revised discussion paper on Direct Taxes Code, capital gains is to be treated as income from ordinary sources and taxed at the applicable rates, as below:

(i) Listed shares: In case of equity shares listed on a recognised stock exchange, which are held for more than one year from the end of the financial year in which these are acquired, the capital gains shall be computed after allowing a deduction at a specified percentage of such gains without any indexation. Thus, it would reduce the effective tax rate in case of long term capital gains.

(ii) Unlisted shares: In case of long-term capital gains arising in case of unlisted shares, the base rate for determining the cost of acquisition is proposed to be shifted from 1 April 1981 to 1 April 2000. The capital gains will be computed after allowing indexation on this raised base. The capital gains on such assets will be included in the total income of the tax payer and will be taxed at the applicable rate.

Short-term capital gains

In case of short-term capital gains arising from any investment asset held for less than one year from the end of the financial year in which these are acquired, the capital gains shall be computed without any specified reduction or indexation benefit. Such capital gains will be included in total income of the tax payer and will be charged to tax at the rate applicable to the tax payer.

STT to continue

Further, the STT is proposed to be continued albeit in a calibrated manner to be specified, being a tax on the transaction.

It is important to note that it is proposed to tax capital gains whether long-term or short-term, listed or unlisted, as per the method/rates to be prescribed.  Therefore, individual investors who have invested in the equities or equity-oriented funds need to analyse the impact of the proposed changes on their portfolio as the capital gains arising from sale of shares would now be subject to tax in all cases including those of listed shares.

Similarly, the stock option schemes, especially those of unlisted companies, may require a re-evaluation as the long-term capital gains after IPO would now be subject to tax in the hands of the employees.

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0 Comments

  1. Rajesh Thakkar says:

    When long term is tax-free, what is the use of indexation ? Just a figure only.Share market will not be in pressure of HIGH selling. I may be wrong but it is my feeling.

  2. venkat1926 says:

    Quote
    i) Listed shares: In case of equity shares listed on a recognised stock exchange, which are held for more than one year from the end of the financial year in which these are acquired, the capital gains shall be computed after allowing a deduction at a specified percentage of such gains without any indexation. Thus, it would reduce the effective tax rate in case of long term capital gains.
    Unquote
    The logical interpreation will be:

    Suppose a person buys a share on 2nd April 2011
    If he sells before 2nd April 2012 it is short term capital gains
    If he sells on 4th April 2012 it is long term capital gains but does not have the deduction
    The financial year of date of purchase ends on 31st March 2012.
    One year after this is 31st March 2013
    So if he sells after 31st March 2013(that is for e.g. 2 April 2013 (nearly two years after his purchase) it is long term capital gain and will have the privilege of deduction.

    Why such a tortuous law???????

  3. CA.N.VENKATESWARAN says:

    DEAR SIR,
    Since the deduction to be allowed from the amount of Long Term Capital Gain without indextation benefit may be even lower than the indexation benefit in case of shares held for longer period, it is in all fairness that the existing investment as on 31-03-2011 in listed shares should be totally exempted from L.T.capital gains tax. otherwise there will be heavy selling presure towards the end of this year to get the benefit of LTCG and this will certainly affect the prices in share market.
    CA.N.VENKATESWARAN.

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