Shares and their taxability

by khalid on 01/10/2012 · 0 comments

Shares and their taxability

All equity shares/equity oriented mutual funds that are held for a period of less than 1 year i.e. the time between the date of purchase and the date of sale is less than 1 year, are treated as short term equity shares/ mutual funds. When these shares are sold through the national stock exchange or the Bombay stock exchange and thereby securities transaction tax is paid on these shares at the time of transfer the gain or loss on the sale of such shares is termed as short term capital gain or short term capital loss.

Short term capital gain on equity shares/ equity oriented mutual funds is taxed at a special rate of 15%. Short term capital loss on the above mention units can be adjusted against short term capital gain or long term capital gain on others assets. If such losses cannot be adjusted in the current year then they can be carried forward for a period of 8 years.

No deductions under chapter VIA i.e. under section 80C to 80U are available against short term capital gains on sale of equity shares/ equity oriented mutual funds. If the individual has only Short Term Capital Gain on sale of equity shares or equity oriented mutual funds and no other income or very little interest income, then in such case the extent up to which the basic exemption limit is unutilized after deducting the interest income, shall be adjusted against the short term capital gain and tax at the rate of 15% would be paid on the balance if any.

For e.g. an individual has short term capital gain on sale of equity shares of Rs. 200000/- and he also has interest from fixed deposits Rs. 20000/-. Then in such a case tax would be calculated as follows:

  • From the basic tax exemption of Rs. 1, 80,000 ,  Rs. 20,000/- would be reduced.
  • From the balance Rs. 1, 60,000/-, the short term capital gain to the extent of Rs. 1, 60,000/- would be adjusted and tax at the rate of 15% would be paid on the balance taxable short term capital gain of Rs. 40,000/-

All equity shares/equity oriented mutual funds that are held for a period of more than 1 year i.e. the time between the date of purchase and the date of sale is more than 1 year, are treated as long term equity shares/ mutual funds. When these shares are sold through the national stock exchange or the Bombay stock exchange and thereby securities transaction tax is paid on these shares at the time of transfer the gain or loss on the sale of such shares is termed as long term capital gain or long term capital loss.

Long term capital gain on sale of equity shares/ equity oriented mutual funds is completely exempted from tax. Long term loss on the above mentioned units cannot be adjusted against any income and such losses can neither be carried forward for adjustment in future years.

Author Bio :

Aashish Ramchand is Co-founder of an e-filing and online tax advisory website. A chartered accountant by profession and passionate about Indian taxation advisory and love to write about the Indian tax system and its various nuances. He suggests to visit www.makemyreturns.com for more information.

 

 

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