Capital gains taxation has always been a contentious issue drawing the attention of Finance Minister in every Budget, with this year not being an exception. So Friends in today’s blog we are going to cover the taxation of LONG TERM CAPITAL GAIN (LTCG) arising from sale of listed shares as well as proposed amendment in this regard by finance act 2018.
So, If you are going to invest in equity shares for long term, this article may assist you to plan your investment.
Profits/Gains arising from the buying and selling of equity shares can be taxed under the head “Capital gains” or “profit or gains from business or profession” depending upon the nature of transaction and intention of the assessee. Tax implications for an assessee dealing in equity shares for investment purpose are explained below-
What is capital asset?
As per section 2(14) of Income Tax Act 1961, Capital assets means property of any kind held by the assessee whether or not connected with business or profession and includes many other assets encompassing Shares.
When capital gain arises?
As per section 45, any profit or gains arising from transfer of a capital asset effected in the previous year shall be chargeable to income tax under the head “capital gains” & shall be deemed to be the income of the previous year in which transfer took place subject to certain exceptions.(Discussed later)
In case of shares Capital gain arises on transfer of a capital asset in the year of its transfer.
Exemptions available?
The capital gains explained above shall be subject to the exemptions provided in section 54, 54D, 54EA, 54EB, 54EC, 54ED, 54EE, 54F, 54GB etc. of Income Tax Act,1961.
When we specifically discuss about the tax implications on sale of listed equity shares, then there is an exemption available u/s 10(38). As per the existing provisions of10(38), income arising from transfer of long term capital asset, being equity shares, where such transaction is chargeable to securities transaction tax, is exempt from capital gains. Here Long term capital asset as defined in section 2(42A)in case of a security listed in Recognised Stock Exchange in India means a security which is held for more than 12 months immediately preceding the date of transfer.
With the proposed budget (Budget 2018), the government has sought to introduce long term capital gain of 10% on such transfer over & above the gains of Rs. 1,00,000. The driving factor behind this step is to bring at par the taxation of income on transfer of shares with income from manufacturing sector as the present regime is inherently biased against manufacturing. This would bring to an end the diversion of funds towards financial assets from the manufacturing sector &the abusive use of tax arbitrage opportunities created by granting such exemption.
However through proper planning, tax can be saved to certain extent.
- Using the threshold of Rs.1,00,000 per financial year as Capital Gains up to Rs. 1,00,000 are not brought to tax net.
- If the total taxable income of the assessee is below 5 lakh then he can claim the gains as business income and pay the tax @5% only Instead of 10% or 15% above maximum amount not chargable to tax.
This article is authored by CA Tripti Pandey & CA Kamaljeet Rai. The views expressed in this article are those of the authors. Kindly consult your Tax Advisor before entering into such transactions.
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