Do you invest or planning to invest in Equity shares? If Yes, then should have a understanding of the tax implications on sale of shares. For better understanding, first we need to know about the following two types of capital gains/losses on which taxes are levied.
1. Short-term capital gains and losses
If equity shares listed on a stock exchange are sold within 12 months of purchase, the seller make either short term capital gain* or incur short-term capital loss*.
2. Long-term capital gains and losses
If equity shares listed on a stock exchange are sold after 12 months of purchase, the seller make either long-term capital gain* or incur long-term capital loss*.
* If Purchase Price < Sale Price = Capital Gain
If Purchase Price > Sale Price = Capital Loss
Short term capital gains are taxable at 15% irrespective of your tax slab.
Long term capital gain on equity shares listed on a stock exchange are not taxable up to the limit of Rs 1 lakh. Long term capital gain of more than Rs 1 lakh on the sale of equity shares will attract a capital gains tax of 10% and the benefit of indexation will not be available.
It is important to note that above tax rates are applicable only when security transaction tax (STT) is paid on the transaction.
Any short term capital loss from sale of equity shares can be set off against short term or long term capital gain from any capital asset. If the loss is not set off entirely, it can be carried forward for a period of 8 years and adjusted against any short term or long term capital gains made during these 8 years.
The long term capital loss can be set-off against any other long term capital gain and unabsorbed long term capital loss can be carried forward to subsequent eight years for set-off against long term gains.
|Long Term||Short Term|
|STT paid sale of shares listed on recognized stock exchanges||NIL for gains upto c 1 Lakh and 10% for gains above > 1 Lakh; minimum holding period of 1 year||15% if held for less than 1 year|
|Non STT paid sale of shares||10%; minimum holding period of 1 years||At marginal tax rate (5% to 30%) plus 3% cess plus surcharge (if applicable)|