Balwant Jain
Confused about taxation of any income arising in respect of shares, be it capital gains on sale of such shares or dividends received? There is general perception that any income received in respect of shares is exempt from tax, be it capital gains or dividends. This is really not so. In order to make matter clear for the readers, in this article I will attempt to explain the tax implications of income from shares. Let us understand various aspect of taxation of shares now.
Holding Period requirement long-term and short-term:
Generally profits arising on sale of any capital assets are treated as long-term if the same have been held for 36 months or more on the date of sale. However, in case of shares in any company, the holding period requirement is only 12 months or more in order to make such profits as long-term. It is important to note that the requirement of lower holding period is applicable for shares in any Company and not necessarily an Indian Company. Moreover even shares held in a private limited company will also become long-term if held for 12 months or more on the date of sale of such shares. This includes equity shares and preference shares as well.
Provisions applicable for sale of equity shares listed on Indian Stock Exchanges:
As per the present provisions of income-tax laws, any long-term capital gains arising on equity shares, listed on Indian stock exchange, sold through a stock-broker are fully exempt from income tax. This exemption is not available in case the listed shares are sold private outside the stock exchange platform or cases where the shares have been tendered to the company under buyback scheme or under any open offer. For claiming this exemption, the equity shares should be sold on the platform of stock exchange in India on which Security Transaction Tax (STT) has been paid. In order to verify whether the shares sold by you are subjected to STT, please see the bill issued by your share broker. All the transactions of equity shares executed on stock exchange are liable for STT. It is interesting to note that this exemption for long-term capital gains is not available in case the shares are sold on any stock exchanges outside India. It is also pertinent to note that this exemption is available only in respect of equity shares listed on Indian Stock Exchange whether it is an Indian Company or a foreign company. This way say shares of any foreign company which are listed Indian Stock exchange will also enjoy this exemption provided those shares are sold through a stock broker..
In case of short term capital gains on equity shares sold on stock exchanges in India are taxed at a flat rate of 15%. It is also interesting to note that even in cases where the applicable slab tax rate is 10%, you will still have to pay tax of 15% on such short-term capital gains. This rate still will be 15% even in case the slab rate applicable to you is 30%. In case your other income excluding this short-term capital gains is less than basic exemption limit, you will be entitled to take the benefit of such shortfall in the basic exemption limit while calculating your tax liability.
Tax in respect of capital gains arising on sale of shares other than equity shares transacted on Indian Exchange:
All the transaction of shares do not take place on the platform of stock exchange. This would cover transaction of unlisted shares as well as transactions of listed shares in the form of open offer or buy back of these shares by the company directly. Any capital gains arising on sale of such transactions will still be treated as long-term if the shares have been held for 12 months or more on the date of sale. In case the shares are sold within 12 months, the short-term capital gains arising on such transaction shall be included in your regular income and shall be taxed at the slab rate applicable to you.
Generally the tax-rate applicable in case of long-term capital gains is 20% on the indexed capital gains. However in certain cases if the long-term capital gains calculated with indexation is higher than 10% of unindexed capital gains, your liability on such long-term capital gains shall be restricted to 10% only in certain cases. This option of choosing between 20% on indexed long-term capital gains or 10% of unindexed capital gains is available only in case of only listed shares which are transacted outside stock exchange. So in case you had tendered shares of Hindustan Uniliver under buyback scheme, your liability would be restricted to 10% of profit made by you in case the shares were held for 12 months or more.
In case the shares sold are not listed in India, this option of choosing between 10% unindexed and 20% indexed capital gains is not available.
In case your other income excluding these long-term capital gains is less than basic exemption limit, here also you will be entitled to take the benefit of such shortfall in the basic exemption limit.
However in case of short-term gains arising on sale outside platform of stock exchange of all the shares whether listed in India or not , such short-term gains will be taxed at the slab rate applicable to you.
Taxation of Dividends received on shares:
Any dividend received on shares held in Indian company is fully exempt from payment of tax. However the company is required to pay a tax called Dividend Distribution Tax on such dividend at the rate of 15% on such dividend. So effectively 15% tax on your behalf has been paid by the company on the dividends received by you.
Hope the article has eased your confusion about the taxability and the rate of tax on sale of shares. Your feedback and queries are welcome.
(Balwant Jain is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. He can be reached at jainbalwant@gmail.com)
Author Bio
on allotment of shares i.e 1-1-16 i paid 80 for 100 rupees after 1 year i.e 1-1-17 i paid remaining 20 rupees. on sale (i.e 8-10-17) how to calculate capital gains whether indexation applicable or not if yes how to calculate please give suggestion in this regard.
A private limited company has only two share holders, husband and wife. In 2015 the company issued 6,00,000 additional shares to them at face value, instead of paying dividend. Whether this is to be compared with the FMV of shares . whether it is taxable.
Hello sir ,
My father is retired person , he plan to sell the shares which held more than 12 months, after selling of shares herewith plan to use that money for renovation and repair of house , is that income from sale of shares will be taxable?
Sir, I am a retired person. If I do share business as short time (Buying & Selling often) by investing less than Rs. 100000/- (Rupee one Lakh)have I got to pay tax as per your calculation.
Is there any minimum investment limit or minimum transaction limit to come under tax
Hello Sir,
Thanks for this very informative article!
My query is which ITR form needs to be filed for AY 2015-16 if a salaried person (no business income) has some intraday gains (Rs. 3000) and STT is paid on it?
Thanks,
Vaibhav
Thank you sir for sharing a wonderful info
Sir i have a question
i am a trader in stock market and do intraday and delivery trades.this is the only source of my income there is no other income source. So if my earning is near about Tax slab like 250000 for current FY so do i need to pay income tax.
@ Ashish Pandey
For shares held in private limited or public company which is not listed, the profit on sale of such shares shall be treated as short term if held for less than 36 months.
@ asit Mahapatra
Since the shares have been held for more than 36 months, you will have to pay tax @ 20% +education cess and surcharge if applicable.
@ parmal Ray
Since your total income including the short term capital gains did not exceed, you do not have any tax liability on the short term capital gains on Rs. 25,000/-
@ asha
Please read the article carefully. I am reproducing the relevant portion for your ready reference.
In case the shares sold are not listed in India, this option of choosing between 10% unindexed and 20% indexed capital gains is not available.
So the applicable tax rate would be 20%+ education cess and surcharge if applicable.
I am sr.citizen sold some listed share through broker within one yr. of holding and prfit earned about Rs.25000/ in FY-2014-15.My other income was about Rs.200000/ How much tax will i have to deposit.
I have share of a Pvt Ltd company whose shares are not listed. I got the shares in Feb 2011. I want to sell a portion of these shares. How much % of tax I need to pay?
My question is if there is loss in shares whether this loss will be deducted from the income for IT?
Sir,
I have a Pvt. Ltd. Co. in which i had purchased another Pvt ltd co. share in Dec 2010. The company was subsequently listed in May 2013. I sold the share in Jan 2014 on the stock exchange with STT paid.
Will the income arising from this sale will be taxable? If yes then by what rate.
dear sir. I held shares of a private limited company which is not listed on any exchange for 19 months and than sold them. what will be my capital gains tax laibility. please advise. i am totally confused. also please mention the section and subsection.
Sir
My wife and I have shares in listed indian coy. On sale of shares, proceeds gets credited to my wife’s account it is a demat account in both names. My wife is employed and I am retired. Can she transfer part or full sale amount to me so that I have a lesser tax liability when such amounts are reinvested in fixed deposits. Kindly clarify. Thanks
sir
under the new filing system itr utility 2, cannot understand where to show the capital gain on shares as its keeps asking for exemption under 54 .
can you pls clarify where should i show the same and get the btax advantage
sir actually u have explained about the Tax Implications on sale of Shares, But my question is what is the Tax Rate for LTCG arising from Sale of Unlisted Shares.
sir actually u have explained about the Tax Implications on sale of Shares, But my question is what is the Tax Rate for LTCG arising from Sale of Unlisted Shares. is it 20% with an Indexation.
Dear Sir, how to calculate the turnover in the case of trading in derivatives for the purpose of auditing the same.
Regards
Thanks a lot! It’s a great help.
How does differentiate between an investor or someone who is regularly trading and then for such a person there will be no such thing called short term capital gains as it would be treated as a business income hence the proportionate tax slab, here then what happens for holdings of more than 12 months and what expenses can be written off for an income clubbed under as a business income? Some expenses could include the following
1. Internet charges.
2. Printing and computer expenses.
3. Cost towards buying of the news papers and stock related magazines etc.
4. Postage and conveyance charges etc.
I trust that you will explain the above.