Long term capital gains tax on sale of stocks, short term capital gains tax on stocks: Capital gains tax is levied on the profit made from the sale of an asset, such as stocks, mutual funds, real estate etc.
Long term capital gains (LTCG) tax and short-term capital gains tax (STCG) on sale of shares?
Long term capital gains (LTCG) tax on the sale of these asset classes stocks, mutual funds, real estate etc. is levied when the holding period of the asset is over one year, whereas short-term capital gains (STCG) is levied when the sale of stocks, mutual funds, real estate etc. is made within one year from the date of purchase.
Will Modi 3.0 increase the tax on sale of shares, mutual funds, real estate?
There are expectations that the upcoming budget on July 23 may either tweak the rate of taxation on sale of shares or change the holding period of such shares for computation of long term capital gains tax (LTCG) and short term capital gains tax (STCG).
There are also reports that the government may tweak the holding period of shares for the purposes of calculating long-term capital gains tax and short-term capital gains tax. That apart, tax treatment of trading in the derivative / futures & options (F&O) segment can also be done.
Some experts are also asking for parity in taxation for bank deposits with other investment options such as stocks, bonds, real estate and mutual funds in the upcoming Modi 3.0 budget.
“Parity on taxation front for bank deposits (both Demand and Time) vis-à-vis other investment avenues is an immediate need given the shifting preference of select cohorts of investors to alternate asset classes whose returns have been trumping bank deposits,” wrote Soumya Kanti Ghosh, group chief economic adviser at State Bank of India (SBI) in a recent note.
What is the current tax treatment of sale of stocks listed on BSE, NSE?
If equity shares / stocks listed on a stock exchange are sold within 12 months of purchase, the seller of such stocks / shares may make a short-term capital gain (STCG), or incur a short-term capital loss (STCL).
The seller makes short-term capital gains when shares are sold at a price higher than the purchase price. Short-term capital gains are taxable at 15 per cent.
How is short term capital gains on sale of shares tax calculated?
Calculation of short-term capital gain = Sale price less Expenses on Sale less Purchase price
Let’s understand this with the help of an example.
Say, you purchased 250 shares of a company listed on the BSE or the NSE at Rs 155 per share and sold them for Rs 192 a share after 5 months for Rs 48,000.
Let’s see how much money you make in the short run.
?-? Sale proceeds = Rs 48,000
?-? Brokerage at 0.5 per cent = Rs.240
?-? Purchase price = Rs 38,750 (250 shares x Rs 155 per share)
Since the stocks are sold in less than a year from the date of purchase, here’s the short term capital gains tax liability:
Rs 48,000 less (Rs 38,750 + Rs 240) = Rs 9,010
How is long term capital gains on sale of shares tax calculated?
If equity shares listed on a stock exchange are sold after 12 months of purchase, the seller may make a long-term capital gain (LTCG), or a long-term capital loss (LTCL).
“Before the introduction of Budget 2018, the long-term capital gain made on the sale of equity shares or equity-oriented units of mutual funds was exempt from tax, i.e. no tax was payable on gains from the sale of long-term equity investments,” said Manikandan S, tax expert, ClearTax.
Adding: “The Budget of 2018 took away this exemption. Now, if an investor makes a long-term capital gain of over Rs 1-lakh on the sale of equity shares or equity-oriented units of a mutual fund, the gain made will attract a long-term capital gains tax of 10 per cent (plus applicable cess). Also, the benefit of indexation will not be available to the seller. These provisions will apply to transfers made on or after 1 April 2018.”
What is the grandfathering clause in capital gains tax?
Gains starting from the February 01, 2018 will only be considered for taxation. This is known as the ‘grandfathering clause’.
“Any long-term gains from the equity instruments purchased before the January 31, 2018 will be calculated according to this ‘grandfathering clause’. The tax will be levied at a concessional rate of 10 per cent on capital gains exceeding Rs 100,000 earned from selling listed equity shares,” Manikandan adds.
First Published: Jul 09 2024 | 12:08 PM IST
