Understanding “Capital Gain” for Tax Purpose

What are the types of Capital Gain for tax purpose?

There are two types of capital gain?

1. Long Term Capital Gain (LTCG)

On sale of capital assets:
Long Term Capital Gain arises when the capital assets are held for 36 months or more before selling them

On sale of equity shares of company (Indian or Non-Indian, Public limited or Privately held):
Long Term Capital Gain arises when the shares are held for 12 months or more before selling them

2. Short Term Capital Gain (STCG)

On sale of capital assets:
Short Term Capital Gain arises when the capital assets are held for less than 36 months before selling them

On sale of equity shares of company (Indian or Non-Indian, Public limited or Privately held):
Short Term Capital Gain aries when the shares are held for less than 12 months before selling them

How much tax is paid on LTCG?

LTCG arising after selling the shares listed on Indian Stock Exchange (whether it is an Indian Company or a foreign company) through recognized stock broker are fully exempted from Income Tax provided the STT (Securities Transaction Tax) is paid.

In this case you need not enter the details of LTCG in Income Tax Return forms.

This exemption is not allowed if:
a. the shares are sold outside Stock Exchange platform
b. the shares are tendered under buyback option or any other open offers
c. the shares are sold on Stock Exchanges outside India

In such non-exempted cases, the tax rate for LTCG is 20% on the indexed capital gains.
However, if the LTCG calculated with indexation is > 10% of unindexed capital gains, then your liability on such LTCG shall be 10% in such cases a) and b) mentioned above.

If the shares sold are not listed in India, then this option of choosing between 10% unindexed and 20% indexed capital gains is not applicable.

How much tax is paid on STCG?

STCG arising after selling the shares listed on Indian Stock Exchange (whether it is an Indian Company or a foreign company) through recognized stock broker is taxed at a flat rate of 12% provided the STT (Securities Transaction Tax) is paid.

If your total income during FY’17 exceeds Rs1 crore, “surcharge” would be levied at 15% on basic rate (i.e.15%), also “Education cess” of 3% will be levied on basic as well as surcharge.

In case STT is not paid, then you need to include STCG in your regular income and tax will be computed based on the tax slab applicable to you. Further, surcharge, if applicable, and education cess will have to be applied.

STCG details need to be entered in Income Tax Return forms.

How much tax is paid on dividend received by on shares?

The dividends received fRom the shares for Indian company is fully exempted from income tax.
However, the company which is giving dividend is supposed to pay a tax called “Dividend Distribution Tax” on the distributed dividends at the rate of 15%.

What is STT (Securities Transaction Tax)?

STT (Securities Transaction Tax) is levied on every purchase or sale of the securities (Shares, Equity Oriented Mutual Funds, Derivatives etc…) that are listed on the Indian Stock Exchanges.
This tax is levied at source by the broking firms or mutual fund AMCs.
Central Government decides the STT to be levied.

 

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