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How to determine Capital gain tax on Share

Now we are going to discuss on Capital gain tax on Share. Normal Person doesn’t now under which head the profit from purchase & sale of shares are taxed. Which type of profit is exempt & which type of Profit is taxable. In this post we are making discussion on Purchase & sale of listed equity shares. We are discussing normal provision which is useful to normal person (doing purchase & sale of shares not on regular basis).

The Profit & loss from purchase and sale of shares are taxable under the head Income from Capital Gain. Income from Capital Gain is also divided into two parts:

  1. Long Term Capital Gain (LTCG)
  2. Short Term Capital Gain (STCG)

Is Capital gain tax on Share is long term or short term

Normally the assets which are held for 36 months or more are considered as long term capital assets & the Profit or loss arising on purchase & sale of long term capital assets is considered as long term profit/loss.
Long term and short term assets in share – But in case of shares, the shares which are held for twelve months or more from the date of purchase then they are considered as long term capital assets & profit & loss on purchase & sale of shares is considered as long term profit or loss.

Tax rate for Long term capital gain  and short term capital gain on  sale of share

Profit from long term & short term are taxed at different income tax rate –
Tax rate on long term capital gain – Profit from long term capital gain is taxed at direct 20% with indexation & 10% without indexation. It is advisable to calculate the long term capital gain on share with and without indexation and take the option which is tax beneficial. An assesee is free to select any option as per his choice
Long term capital gain on share exempt from tax – But Long term capital gain on transfer of shares on which Securities transaction tax is paid is exempt from income tax u/s. 10(38).
Tax rate on short term capital gain – Profit from short term capital gain is taxed at direct 15%.

Example of capital gain – We can understand the above topic with an e.g. suppose Mr.Anil has purchase 100 shares @ 200 per share on 15th April, 2014 & sells the same shares on 15th December, 2014 @ 300 per shares. Now we calculate the capital gain & income tax on the same.

First we are calculating whether the shares are Long term or short term. Shares are held for less than 12 month period hence shares are short term & profit is also short term.

Second we calculate the Capital Gain:

= (300*100)-(200*100)


=Rs. 10000

Third we are calculating tax on this short term capital gain:

Total Short Term Capital Gain= Rs. 10000/-

Short term capital gain= 10000*15% = Rs. 1500/-

In case your other income excluding this short- term capital gains& long term capital gain is less than basic exemption limit(provide link of slab rate from tax baniya), you will be entitled to take the benefit of such shortfall in the basic exemption limit while calculating your tax liability.

For e.g. You are individual aged 45 & your total income other than short term capital gain is Rs. 150000/- for F.Y. 2014-15 & short term capital gain is Rs. 80000/-.

In this case your basic exemption limit is Rs. 200000/-. In this you can adjust your short term capital gain upto Rs. 50000/-/ (Rs. 200000-150000). Remaining short term capital gain of Rs. 30000/- (Rs. 80000-50000) is taxed at 15%..

 Tax on dividend income:

The entire dividend distributed by Indian company is fully exempt from tax u/s. 10(34) of the Income Tax Act, 1961 because company already paid tax on this dividend income as dividend distribution Tax.

After reading this article you will gain a basic knowledge about Taxation on Transfer of listed equity shares.

Capital gain tax calculator

click here to calculate the capital gain on investment  Capital gain tax calculator


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