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Capital Gains on Shares

Long & Short Term Capital Gain Tax on Shares

Last Updated 13th May 2021

  • In case of shares, the long term capital gain is levied if the holding period is 1 year or more.
  • The short term capital gain tax is charged at the rate of 15%, while long term capital gain is charged at the rate of 10% if the gain is above Rs. 1 lakh.
  • For securities other than shares and mutual funds listed on recognized stock exchanges, the long term capital gain tax rate is 10%.
  • The short term capital gain tax is charged at a marginal rate of 5% to 30% plus 3% cess, for all securities other than shares and mutual funds listed on recognized stock exchanges.
  • No change in Income Tax Slabs, Introduction of Dispute Resolution Committee and much more. Read Union Budget 2021 Highlights New
INCOME TAX CALCULATOR

Capital Gains Tax on Shares

Capital gains tax rate from sale of shares, equity mutual funds and debt mutual funds are based on three factors:

  • What is the period for which the shares they have been held?
  • The nature of instrument – shares, equity mutual fund or debt mutual fund
  • Whether STT (Securities Transaction Tax) has been paid on sale of the shares
Long term Short term
STT paid sale of shares listed on recognized stock exchanges and mutual funds NIL for gains upto ₹ 1 Lakh and 10% for gains above ₹ 1 Lakh; minimum holding period of 1 year 15% if held for less than 1 year
Non STT paid sale of bonds, debentures, shares and other listed securities 10%; minimum holding period of 1 years At marginal tax rate (5% to 30%) plus 3% cess plus surcharge (if applicable)
Assets other than STT paid sale of shares listed on recognized stock exchanges & mutual funds 20%; minimum holding period of 3 years At marginal tax rate (5% to 30%) plus 3% cess plus surcharge (if applicable)
Debt mutual funds 20% with indexation or 10% without indexation; whichever is lower; minimum holding period of 3 years At marginal tax rate (5% to 30%) plus 3% cess plus surcharge (if applicable)

Capital gain tax rate on sale of shares and mutual funds

Short term capital gain on sale of equity

Under section 111A, when you sell the shares and mutual funds within one year of its acquisition, any gains arising from such sale will be considered as short term capital gain. The profits earned from the sale of STT (Securities Transaction Tax) paid shares that are listed on recognized stock are taxable at the rate of 15%. However, short term capital gain arising from the sale of non- STT paid shares, bonds, debentures and other listed securities will be taxed as per the marginal income tax slabs applicable to individuals and HUFs.

Long term capital gain on sale of equity

Under section 10 (38), when you sell the shares and mutual funds within three years of its date of acquisition, any gains arising from such sale will be considered as long term capital gain. The profits earned from the sale of STT (Securities Transaction Tax) paid shares that are listed on recognized stock exchange are tax exempted as per section 10 (38) of Income Tax act, which means no tax will be levied on such long term capital gain. However, long term capital gain from the sale of non- STT paid shares, bonds, debentures and other listed securities will be taxed at the rate of 10%.

Capital gain tax rate on sale of assets other than the STT paid shares listed on recognized stock exchange and mutual funds

  • Short term capital gain on sale of asset other than STT paid shares listed on stock exchange and mutual fund: when you sell any asset other than the STT paid shares and mutual funds within one year of its date of acquisition, any gains arising from such sale will be taxed as per the marginal income tax slabs applicable to the individuals and HUFs.
  • Long term capital gains on sale of assets other than the STT paid shares listed on stock exchange and mutual funds: when you sell any asset other than STT paid shares and mutual funds within three years of its date of acquisition, any gains arising from such sale will be taxed at the rate of 20% along with the applicable surcharge and cess.

Capital gain tax rate on sale of debt mutual funds

When you sell the debt mutual funds, any gain arising from such sales will be considered as capital gain. However, to find out whether the gains are short term capital gain or long term capital gain, you are required to calculate your minimum holding period. The minimum holding period is calculated from the date of acquisition of mutual funds to the date of sale. When you sell the debt mutual funds within three years of acquisition, gain arising from such sale will be considered as short term capital gain. If the sale is after three years from the date of acquisition, the resulting gain will be considered as long term capital gain. The tax treatment for short term and long term capital gain is different as per the income tax rules.

  • Short term capital gain on sale of debt mutual funds : When you sell your debt mutual funds within three years of its date of acquisition, any gain arising from such sale will be considered as short term capital gain and it will be taxed as per the marginal income tax slabs applicable to the individuals and HUFs.
  • Long term capital gain on sale of debt mutual funds as per section 112 of Income Tax Act : When you sell your debt mutual fund after three years or more from its date of acquisition, any gain arising from such sale will be considered as long term capital gain. Long term capital gain from sale of debt mutual funds carries a tax rate of 20% (with indexation) and 10% (without indexation) along with the applicable surcharge and cess. The profits earned under LTCG are taxed under separate head of long term capital gains and is eligible for the benefit of indexation of the acquisition cost of debt mutual funds. The long term capital gain is computed by reducing such indexed cost from the net selling price realized.

Budget Highlights 2021

  • Tax Related Announcements in Budget 2021

    Taxation Related

    • Senior citizens above the age of 75 years who have only pension and interest income are now exempt from filing Income Tax Returns.
    • Tax holiday on affordable housing projects extended for 1 year till March 31, 2022.
    • Tax holiday for start-ups increased by one more year till March 31, 2022.
    • A dividend payment in REIT (Real estate investment trusts) and INVIT (Infrastructure investment trusts) exempt from TDS.

    Tax Assessment and Filing Related

    • Details of capital gains and interest from banks, post offices, etc will be pre-filled to ease filing of IT returns.
    • National faceless income tax appellate tribunal will be set up for individual taxpayers.
    • Dispute resolution committee will be set up for small taxpayers.
    • The time frame for reopening of income-tax assessment cases reduced from 6 years to 3 years.

    Savings Related

    • Late contribution to EPF by the employer for employees will not be allowed as a deduction to the employer.

    Others

    • A budget of Rs. 35,000 crore allotted for Covid-19 vaccines.

FAQs

How is capital gains tax calculated on shares?

The capital gains tax is calculated on the profit made from selling the shares after taking into consideration the time period for which they were held to ascertain whether it's long term capital gain or short term capital gain.

How can I avoid capital gains tax on shares?

To avoid capital gain tax, make sure you hold them for more than a year. Long term capital gain is taxed only when the profit from equities is more than ₹ 1 Lakh in a financial year. So, you can book your shares for the long term through the method of harvesting where you buy back the same stocks or mutual fund after holding them for more than a year and booking a profit of less than ₹ 1 Lakh.

Do you pay capital gains tax on shares?

Yes, the capital gain tax applies to shares.

Is long term capital gain on shares exempt?

The long term capital on shares is exempt only to the extent of ₹ 1 Lakh in a financial year.


Our News - May 2021
  • 2021-04-12 : Faceless tax assessment solved more than 60% of IT cases
    CBDT reported that the faceless tax assessment solved more than 60% of IT cases. It was set up with an aim to impart greater efficiency, transparency and accountability by eliminating the interface between the Assessing Officer and the assesses in the course of proceedings to the extent technologically feasible.
  • 2021-04-01 : New ITR rule for senior citizens above 75 years from 1 April
    With effect from 1 April 2021, senior citizens above 75 years of age will be exempted from filing income tax returns. This facility will be available to only those senior citizens who have no other income other than pension and interest income.
  • 2021-03-02 : CBDT extends dates for penalties and assessments
    CBDT extended the due date for penalties under the Income Tax Act, 1961 to 30th June 2021. Further, it also extended the deadline for assessments under the Income Tax Act and notices under the Benami Property Transaction Act, 1988 to 30th April 2021.
  • 2021-02-02 : Income tax won’t be taxed twice for NRIs
    Union Budget 2021-2022 proposes to provide relief from double taxation for NRIs on money accrued in foreign retirement accounts by claiming relief on tax deducted on such money in India. Currently, there is a mismatch in the year of taxability of such funds in India and the respective foreign country.
  • 2021-02-01 : Dispute resolution committee and National faceless income tax appellate tribunal to be set up
    FM proposed the setting up of the National faceless income tax appellate tribunal for individual taxpayers. Details of capital gains and interest from banks, post offices, etc will be pre-filled to ease filing of IT returns. Further, a Dispute a resolution committee will be set up for small companies.
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