Capital Gains on Securities

How are securities classified as Short Term or Long Term Capital Assets?

Ans.

Capital 

Asset

Listed securities in India (other than units) (STT paid), Equity Oriented Mutual Fund, Zero Coupon Bonds, Units of Unit Trust of India

Unlisted shares

Others*

Short Term

 

Less than or equal to 12 months

 

Less than or equal to 24 months

Less than or equal to 36 months

Long Term

 

More than 12 months

More than 24 months

More than 36 months

 

*Others include Units of Business Trust, Units of Mutual Funds (other than equity oriented Mutual Funds), Unlisted Bonds, Unlisted Debentures, etc.

What is the tax liability on Capital Gains arising on sale of shares and securities in India?

Ans.

The tax liability on capital gains on sale of shares and securities shall be as under:-


Security

STCG

LTCG

Listed Equity shares

 

15%*

(STT paid on sale)

10%*

(STT paid on sale as well as on acquisition, subject to certain exceptions as notified)

Equity oriented Mutual Funds and Units of Business Trust

15%*

(STT paid on sale)

10%*

(STT paid on sale)

Mutual Funds other than Equity Oriented Mutual Funds

As per slab rates

20%* (Indexation)

1.    Listed Capital Indexed Bonds

2.    Listed Sovereign Gold Bonds

3.    Listed Securities (other than above)

As per slab rates

Lower of:

20%* (Indexation) 

10%*(Without indexation)

1.    Unlisted Capital Indexed Bonds

2.    Unlisted Sovereign Gold Bonds

3.    Unlisted Securities (other than above)

As per slab rates

10%*

(Without indexation)



















* Plus applicable Surcharge and Health and education cess on Income Tax

A NRI has sold its shares in April, 2018 and had purchased the said shares in February 2010, such shares are sold and purchased on recognized stock exchange and STT is paid both the time. What will be the taxation on gains?

Ans.

Since period of holding of the shares is more than 12 months, capital gain shall be treated as long term capital asset. As per provisions of the Act, LTCG on sale of shares, listed on recognized stock exchange and on which STT is paid is taxable @10% under Section 112A of the Act, subject to said LTCG upto Rs. 1 Lakh is exempt from tax. However, for securities purchased before 1 February 2018 and sold after 31 March 2018, all gains up to 31 January 2018 will be grandfathered i.e. would be exempt from tax.

    

Example:

 

Purchase Cost of share on 1 January 2017: Rs. 50

Fair Market Value (‘FMV’) as on 31 January 2018: Rs. 100

Sale Value on 30 April 2018: Rs. 110

 

Computation of LTCG shall be as follows:

 

Particulars

Amount

 

Amount

Actual Sale Value

 

Rs. 110

Cost of Acquisition:

(higher of 1 and 2)

 

Rs. 100

1.            Purchase Cost

Rs. 50

 

2.            Lower of (a) and (b)

(a)          Actual Sale Value                Rs.110

(b)          FMV as on 31 January 2018  Rs.100

i.e. Rs.100

 

LTCG

 

Rs.10*

 

Note:

The benefit of FMV as on 31 January 2018 is available for only those shares which are purchased before 1 February 2018.

 

The FMV of the share shall be the highest trading price on the recognized stock exchange as on 31 January 2018.      

 

*As per the relevant provisions of the Act, all capital gains upto 31 January 2018 are exempt from tax. Accordingly in the above example, one may find that out of total capital gains of Rs.60 i.e. (110-50), gains to the extent of Rs. 50 i.e. (100-50) upto 31 January 2018 is exempt from tax and balance gains of Rs. 10 i.e. (110-100) is chargeable to tax at 10%.

Will the answer differ if STT is not paid on such purchase of shares?

Ans. Yes, the LTCG on sale of shares on which STT is not paid at the time of acquisition of shares is taxable at higher rate, subject to certain exceptions.

Is the benefit of indexation available while computing capital gain arising on transfer of short term capital asset?

Ans. The benefit of indexation is available only in case of long term capital assets and is not available in case of short term capital assets. Refer answer to FAQ b. for meaning of indexation in Chapter 15: Taxation of Capital Gains on Sale of Immovable Property.

In respect of capital asset acquired before 1 April, 2001 is there any special method to compute cost of acquisition?

Ans. Generally, cost of acquisition of a capital asset is the cost incurred in acquiring the capital asset. It includes the purchase consideration plus any expenditure incurred exclusively for acquiring the capital asset. However, in respect of capital asset acquired before 1 April, 2001, the cost of acquisition will be higher of the actual cost of acquisition of the asset or fair market value of the asset as on 1 April, 2001.