Taxability of Short Term Capital Gains on Listed Equity Shares & Mutual Funds

Taxability of Short Term Capital Gains

Any profit realized from disposition, transfer or sale of any investment property or asset is known as a capital gain. If holding period for the Assets are less than 12 months in case of shares and mutual funds (36 or 24 months in other case), then profit generated from their sale is termed as Short Term Capital Gain.

Since Shares are fast-moving assets, the holding period of less than 12 months are considered to be short-term investments. However, the period of 12 months is considered only for shares listed under the recognized stock exchange like Bombay Stock Exchange (BSE), National Stock Exchange (NSE), etc.

For shares not traded through or listed under stock exchanges, holding period is considered to be less than 36 months.

Section 111A of Income Tax Act is applicable in the case of Short Term Capital Gain on the purchase or sale of-

  • Equity shares or equity-oriented mutual fund units
  • Transferred through a recognized stock exchange
  • Such transaction is liable to securities transaction tax (STT)

STCG covered under Section 111A is charged to tax @ 15% (plus surcharge and Cess as applicable). However, w.e.f. AY 2018-19, benefit of concessional tax rate of 15% shall be available even where STT is not paid, if the following 2 conditions are satisfied-

  1. Transaction is undertaken through recognized stock exchange located in any International Financial Service Centre, and
  2. Consideration is paid or payable in foreign currency

STCG other than covered under section 111A is charged to tax at normal rate of tax which is determined on the basis of the total taxable income of the taxpayer.

Calculation of Capital Gain Tax on Listed Equity Shares

Let us discuss in detail regarding the calculation of Short term Capital Gains on Listed shares-

STCG can be calculated by reducing the following items from the total sales value:

  • Purchase price of shares
  • Brokerage charge incurred during the sale of the shares

Short Term Capital Gain (STCG) = Sales Value (SV) – (Purchase Price + Brokerage Charge)

Mr. X Bought 10000 sharesof a company listed under the recognized stock exchangeat the rate Rs. 60 per share, paying total amount of Rs. 6,00,000. Mr. X sold all the shares for Rs. 120 per share after 4 monthsat Rs. 12,00,000. He paid brokerage @ 0.10%

Sales Consideration                                                                                                Rs. 12,00,000

Less: Purchase price of shares                                                                              (Rs. 6,00,000)

Less: Brokerage Charge @ 0.10%                                                                         (Rs. 6000)

STCG (as the shares were held for 4 months)                                                       Rs. 5,94,000

Short Term Capital Gain is covered under section 111A and, hence, will be charged to tax @ 15%& Health & Education Cess@4%i.e.,

5,94,000 x 15% = 89,100 + 4% Cess = 92,664

Total Tax on STCG = Rs.92,664

In case of any Query related to Short Term Capital Gain on Listed Shares, Contact your Trustworthy Advisor Manthan Experts.

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Knowledge Update

How to Calculate Capital Gains?

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