Introduction:
Many investor started dealing in security market in financial year 2020-21 due to lockdown. They must have dealt with short term, long term, intraday & F&O transactions through the year. There were rapid increase in customer base of broker and trading volume too.
We are in the month of March, Hence, it is extremely important to know the tax implication on stock market transactions and actions to take before 31st March 2021 as far as tax planning is concerned.
My objective is to brief on existing capital gain tax structure on short term and long term transactions and to give ‘To do list before March end’ which helps to minimize the tax.
Existing provision of Income tax Act:
A. Tax rate provided under Income Tax Act:
| Sr.No. | Type of capital gain | When | Tax rate | Section |
| 1 | Short term capital gain | If investor is holding shares listed on recognized stock exchange for less than 12 Months | 15% | 111A |
| 2 | Long term capital gain | If investor is holding shares listed on recognized stock exchange for more than 12 Months | 10%
(Above 1 lakh only) |
112A |
Simple example:
Short term capital gain: 2,00,000/- Tax : 30,000/- (2L*15%)
Long term capital gain: 2,00,000/- Tax : 10,000/- (2L-1L)*10%
B. Set off provision under Income Tax Act
– Short term capital loss can be set off against short term capital gain and long term capital gain
– Long term capital loss can be set off against long term capital gain only
C. Tax on resident individual and HUF
– Both are not required to pay any tax on short term and long term capital gain if their income is below exemption limit. i.e. 2.50 lakhs.
D. Carry forward of loss
– Short term loss and long term loss can be carried forward for next eight assessment year.
– Short term loss can be set off against short term and long term capital gain in any subsequent year and long term capital loss can be set off against long term capital gain in any subsequent year.
E. Due date of filing Income tax return
– Due date for filing Income tax return is 31st July and 31st October for Individual and HUF (Non audit case) and others respectively.
– Please remember that short term and long term loss can be carried forward only if one has filed income tax return within prescribed due date.
– Therefore, It is very important to file Income tax return within due date.
To do list before 31st March 2021:
A. Book your short term capital loss before March end which will be set off against your existing short term and long term capital gain. Hence you can save 15% & 10% respectively.
You can purchase the same stock after few days if you think that it should be in your portfolio.
B. Book your long term capital loss from your portfolio before March end which will be set off against long term capital gain. Hence you can save 10% tax which otherwise you are required to pay.
C. There is long term capital gain tax on LTCG exceeding 1 Lakh only as per Section 112A. This 1 Lakh limit is per financial year.
By this you can book your long term capital gain to the tune of Rs 1 Lakh before March end and there will be no tax. If you want to hold your portfolio for very long term period, you may again buy the same in couple of days.
With this one can use limit of Rs 1 lakh per annum and save future tax which otherwise would be taxable @ 10% in the year of sale. In simple word, you can save tax of Rs. 10,000 every year.
Author Bio
When I tried to test the tax liability using last year ITR 2 Excel format the system calculates tax on STCG and LTCG together @15% instead of LTCG @10% after deducting Rs.1 lac
While calculating approximate tax liability using ITR2 format of the last year (AY 2020-21) giving figures under STCG and LTCG the system calculates tax @ 15% for total amount instead of STCG @15% and LTCG @10% after deducting Rs.1 lac exemption in the macro enabled excel sheet.
Last year I had capital loss under short term and long term in connection with lock down etc. However I could earn capital gain under short term and long term this year till date. when I tried to find out the tax liability using the ITR 2 excel format of the last year I found that the system calculate tax liability @15% for short term and long term capital gains without deducting Rs.1 lac permitted under long term capital gain after deducting the capital loss incurred last year. I was using macro enabled excel format to find out the tax liability.
CBDT while capturing sale data must also include data of price on 31/01/2018 to give benefit of grand fathering clause wherever applicable, otherwise the figures will need to be corrected. It’s cumbersome lengthy process to fill data for each share traded. Filling information for Capital Gains on ITax site very tedious and painful. Site extremely slow, utility always under Updation. Can we not have better system from CBDT in this country of IT experts. Department should ask for consolidated figure of LTCG and STCG, may be on equity, debt funds, immovable assets, gold etc instead of seeking information ISIN wise.
Trust the tax payers
My wife has investment in Equity Share long back and it is in physical form.
Please let know whether Long Term Capital
Gain is applicable ?
It would be great if you could cover a topic on F & O and Derivatives. Tax applicability, determination of F & O with examples. Thanks
you have not captured tax working on liquid fund, debt fund, grandfather clause traded through stock exchange or not i.e by way of redemption
Is it applicable for the FY 2020-21 as the notification came for furnishing the data of capital gain to CBDT only in the second week of March 2021. Further the budget speech was prefilling of Income tax return applicable only for the next year.
I agree that this rule is the existing one and I have already invested sufficient amount to save tax.
Great suggestion for booking long term capital gain on equity shares and equity mutual funds upto Rs. One Lakh without any tax liability.