Ask Mint Money | Capital gains tax-exempt if equity shares are held for at least a year

Ask Mint Money | Capital gains tax-exempt if equity shares are held for at least a year

I am a government servant with taxable salary below 5 lakh. The interest earned from savings account needs to be shown under the head “income from other sources" but my tax is deducted at source (TDS). Where should I show the interest from savings account? For National Savings Certificates (NSCs), do I need to show the interest each year or interest at the time of maturity? I do trading on a daily basis. Under which head should I show profit and loss?

-Karan Singh Bhardwaj

Interest earned on the savings account (including taxes withheld, if any) is taxable under the head income from other sources. Any taxes withheld by the banker or by the employer are treated as prepaid and are reduced from the tax liability computed on the total income.

Interest accrued/earned on NSCs (VIII Issue) which have a deposit term of six years is taxed as income from other sources on an yearly basis. Further, since NSC is a cumulative scheme, each year’s interest for the first five years is deemed to be reinvested in NSC and hence qualifies for deduction under section 80C. However, in case of NSCs notified by the central government other than NSCs (VIII Issue), interest earned is exempt under section 10(15) of the Income-tax Act.

Where trading in shares is done on a daily basis—the buy and sell transactions are settled on the same day without any delivery—then such transaction is treated as part of speculative business and profits and shall be taxed under the head profits and gains from business/profession.

I have been holding shares in demat form for at least 10 years. Will there be any tax liability if I sell the shares after transferring them to a new account with a private bank?

-K.S. Anilkumar

As per the provisions of the Act, the person whose name is recorded with the depositary holding the shares in demat form is treated as the beneficial owner of the shares and any gains arising on transfer of such shares is taxed in the hands of such beneficial owner.

In your case, even after transfer of shares from one demat account to another, the period of holding of shares shall be determined from the date of purchase of such shares. Where such shares (assuming these are equity shares) were held for more than one year, capital gains arising from transfer of such shares shall be exempted under section 10(38) of the Act, provided security transaction tax is paid thereon. If the period of holding is less than one year, the same shall be taxed as short-term capital gains.

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