Any gain/profit which arises by sale/transfer of a capital asset is known as ‘Capital gain’. Again, the capital gain can be classified into two types i.e., ‘Short-term capital gain’ and ‘Long-term capital gain’. In this article, we will discuss about the Income Tax provisions relating to both Short-term capital gain (STCG) and Long-term capital gain (LTCG) arising from sale/transfer of securities.
1. SHORT TERM CAPITAL GAIN:
In the following circumstances, any capital gain arising from sale/transfer of securities are treated as Short-term capital gain (STCG):
(A) In case of listed shares (equity or preference), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero-Coupon Bonds – if transfer is made before a holding period of 12 months;
(B) In case of unlisted shares – if transfer is made before a holding period of 24 months.
Types of Short-Term Capital Gains:
(a) List of STCGs covered under section 111A:
(i) STCG arising on sale of listed equity shares which is chargeable to STT;
(ii) STCG arising on sale of units of equity oriented mutual fund sold through a recognised stock exchange which is chargeable to STT;
(iii) STCG arising on sale of units of a business trust;
(iv) STCG arising on sale of equity shares, units of equity oriented mutual fund or units of a business trust through recognised 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).
(b) List of STCG not covered under section 111A:
(i) STCG arising on sale of equity shares other than through a recognised stock exchange;
(ii) STCG arising on sale of shares other than equity shares;
(iii) STCG arising on sale of units of non-equity oriented mutual fund (debt oriented mutual funds);
(iv) STCG on debentures, bonds and Government securities.
Taxability of Short-Term Capital gains:
- In case of STCGs covered under section 111A, tax is charged at 15% (plus surcharge and cess as applicable).
- In case of STCGs not covered under section 111A, Tax is charged at the normal rate as per the tax slab applicable to the taxpayer.
2. LONG TERM CAPITAL GAIN:
Capital gain on sale of securities which are transferred after a holding period of 12 months/24 months as recommended for STCG under above point are treated as Long-Term capital gains.
Taxability of Long-Term Capital Gains:
- Sale of equity shares and equity-oriented mutual funds or units of business trust held for more than one year, on or after April 1, 2018 will be chargeable to tax at 10% plus cess @ 4%;
- Before FY 2018-19, all the STT transaction, equity shares and equity-oriented mutual funds held for more than one year are exempted. No indexation benefit will be allowed on such transactions. However, starting from FY 2018-19, capital gains up to Rs.100000 in a single financial year will be exempt from tax. Long Term capital assets other than sale of STT paid equity shares or mutual funds or property transactions or business trust are taxable @ 20%.
- Deduction u/s Chapter-VIA cannot be availed against Long term capital gains taxable @ 10%/20% for both residents and non-residents. Resident taxpayers can adjust the unexhausted basic exemption limit for long term capital gains taxable @ 10% or 20%, whereas Non-residents cannot adjust the unexhausted basic exemption limit. Rebate u/s 87A is not available for long term capital gains taxable @ 10%.
Conclusion:
Now a days, many of the taxpayers having some surplus money are seen to be investing in securities in expectation of making a good profit. Although this is good to invest in securities to make a profit, a clear understanding of the implications of capital gain tax on those profits is having an equal importance for these investors. This will help them in planning their investments more wisely and minimising their capital gain tax expenses.
Author Bio
DURING FY 3022-2023, I HAD EWUITY SHARES GAIN/LOSS . THESE TRANSACTIONS WERE FUNDED VIA MTF (MAGIN TRADING FACILITY).
FOR MY FILING ITR FIR AY 2023 – 2024 WHERE TO INCLUDE AND REPORT THE FUNDING COST (FPC) WHILE REPIRTING GAIN/LOSS ON EQUITUES?
APORECIATE YOUR VALUABLE CLARIFICATION.
THANKS
TR SRIDHARAN
CHENNAI
sridesika@yahoo.com
M : 9176582382