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Tax on gains from sale of shares depends on holding period

If STT is to be paid during sale, STCG will be taxed at 15.45% (inclusive of education cess)

How is income earned from sale of listed shares taxed?

—Amresh Chandre

The taxability of gains from sale of Indian listed shares depends upon the period of holding and whether securities transaction tax (STT) is payable at the time of sale.

We are assuming that the shares are listed on a recognized stock exchange in India.

If the aforesaid listed shares are held for more than 12 months from the acquisition date, gains resulting from the sale of shares will be classified as long-term capital gains (LTCG). The LTCG should be computed as the difference between net sales proceeds (after deducting the incidental transfer charges) and indexed cost of acquisition. The indexed cost of acquisition will have to be calculated using the applicable cost inflation index notified by the income tax department.

If you are not liable to pay STT, say if you sell the shares off-market, then the LTCG should be taxed at 20.6% (inclusive of education cess). Further, if your total income as reduced by the said LTCG is below maximum amount not chargeable to tax, then such LTCG shall be reduced by the amount by which the total income so reduced falls short of the maximum amount not chargeable to tax and the balance LTCG shall be computed at a basic rate of 20.6% (inclusive of education cess). Also, if your total taxable income (including LTCG) during the fiscal exceeds 1 crore, you need to pay surcharge at 10% on the basic tax rate.

Alternatively, the LTCG could be taxed at 10.3% (inclusive of education cess) plus applicable surcharge, if any. To avail the rate of 10.3% plus surcharge, the LTCG should be computed without indexation benefit.

The aforesaid LTCG can be claimed as exempt from tax by investing the sale proceeds in either one residential apartment in India or the amount of LTCG in specified bonds subject to fulfilment of conditions specified under the tax laws.

However, if you are liable to pay STT at the time of sale of shares on a recognized stock exchange, then the LTCG shall be exempt from tax. The said exempted LTCG should be disclosed in your income tax return to be compliant from a reporting perspective.

If the listed shares are held for less than 12 months from the acquisition date, the gains will be classified as short-term capital gain (STCG). The STCG should be computed as the difference between net sale proceeds (after deducting the incidental transfer charges) and the cost of acquisition.

If STT is liable to be paid at the time of sale, the STCG will be taxed at a flat rate of 15.45% (inclusive of education cess). Additionally, surcharge, if applicable, will have to be applied. However, if STT is not payable, then STCG shall be taxable at the applicable maximum tax rate. Also, surcharge, if applicable, and education cess will be levied.

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