Short term capital Gain on shares Section 111A
Whether the gain on shares is short term or long term is decided by the holding period of the stock.
The investment in stock is classified into two parts as per the income tax act
Short term capital gain as under section 111A
Equity stocks invested on a listed recognised stock exchange having a
holding period of less than 12 months are considered short term capital
gains.
Section 111A is applicable in the case of STCG on the purchase or sale of-
Equity shares or equity-oriented mutual fund units
Transferred through a recognised stock exchange
Such transaction is liable to securities transaction tax (STT)
Here, please note that equity-oriented mutual fund is the funds which
invest 65% of the investible funds in the equity shares of the domestic
companies.
If the conditions mentioned above are satisfied, then the transfer of
the stocks will be considered as ‘Short term capital gains under
section 111A.
Instances of STCG covered under section 111A-
STCG on sale of equity shares of a listed company through the recognised stock exchange and liable to STT.
STCG on sale of units of mutual funds through a recognised stock exchange and liable to STT.
STCG on sale of units of business trust.
STCG on sale of equity shares, units of business trust or units of the mutual fund through a recognised stock exchange located in IFSC (International Financial Service Centre) where consideration is paid in foreign currency, even if STT is not liable.
Tax rate applicable for STCG on shares
Short-term capital gain under section 111A is taxed at a flat tax rate of 15%.
Adjustment of STCG u/s 111A against basic exemption limit
If you are a resident as per income tax and your total income post
various deductions is lower than the basic exemption limit, then you are
entitled to set off your short-term capital gains and long-term capital
gains on equity investments (> 1-year holding); and long-term
capital gain on investments other than the equity investments, against the shortfall in your basic exemption limit.
Let us understand this by an illustration –
Mr
Ajay has a taxable salary income is only Rs 1 lakh and a short-term
capital gain on the sale of equity shares of Rs 4 lakh. Calculate STCG
applicable.
Ans-As there is a shortfall in the absorption of the
basic exemption limit of Mr Ajay by Rs 1.5 lakh, short-term capital
gain on the sale of equity can be adjusted to the extent of Rs 1.50
lakh.
Tax will be applicable on a short-term capital gain of Rs 2.5 lakh only at a flat rate of 15%.
Points to be noted-
if your total income including STCG after deduction is below Rs
2.5 Lakh, then your total tax liability is nil and also no liability
will arise us/ 111A as deduction up to the basic exemption limit is
allowed
However, If your total income including STCG is more
than Rs 2.5 Lakhs, then a flat 15% on STCG will be levied. (However
rebate u/s 87a will be available if total income is less than 5 lakhs
i.e up to Rs 12500 of tax liability as per current tax regime)
Deductions from STCG under section 80C-80U
Income tax does not allow any deduction under section 80C to 80U from the short term capital gains referred to section 111A.
However, the investor can claim such deduction short term capital gains other than covered under section 111A.
Illustration of STCG under section 111A
Mr Ajay sold equity shares of XYZ Ltd (Indian company). through
BSE after holding them for a period of 8 months. What will be the rate
applicable on the STCG?
Ans-The sale of equity shares is a short term
capital gain as its holding is less than 12 months. Also being equity
shares transferred through the recognised stock exchange (STT paid ),
this case is covered under section 111A. STCG will be charged at 15%
(plus surcharge and cess as applicable).
Mr Puneet sold units of
a mutual fund (with more than 65% corpus vested in equity) through NSE
after holding them for a period of 11 months. What will be capital gain
tax applicable?
Ans-The sale of mutual funds is
covered under section 111A as the fund is ‘equity-oriented mutual fund
being more than 65% corpus in equity’. Also being held less than 12
months, it will be considered as short term capital gain. STCG will be
charged at 15% (plus surcharge and cess as applicable).
Mr Jay sold units of debt fund after holding them for a period of 10 months. What will be the capital gain tax applicable?
Ans.: The
gain, in this case, is not covered under section 111A and is STCG other
than covered under section 111A. STCG other than 111A is chargeable to
tax at the normal rate applicable to Mr Jay. The normal rate applicable
to Mr Jay will be determined on the basis of his total income.
For more information on this, visit TAXAJ.
Posted by Aashima
Team TaxaJ
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