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Capital gain on sale of shares, equity mutual funds and debt mutual funds Jul 2017

STT paid capital gains eligible for lower tax rate

Capital gains from sale of shares, equity mutual funds and debt mutual funds are taxed or under capital gains based on three factors:

  • What is the period for which the shares they have been held?
  • The nature of instrument – equity, 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; 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 STT paid or non -STT paid shares listed on recognized stock exchange and mutual funds 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 STT paid and non-STT paid of shares listed on recognized stock exchange and mutual funds 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.

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