Equity shares of companies listed on the Indian Stock exchange are treated as long term capital assets if the same is sold/transferred after having held for more than one year
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Question: I am a resident of India. I had acquired some shares more than 20-25 years back when there was no Securities Transaction Tax (STT). I have sold these shares with a profit of Rs. 1,40,000/- on which STT has been paid. How the long term capital gains will be computed in respect of these equity shares? Since my total taxable income including the above long term capital gains after the initial exemption is less than ₹5 lakhs so I feel I do not have to pay any tax in view of the rebate under Section 87A. Please confirm.
Answer: Equity shares of companies listed on the Indian Stock exchange are treated as long term capital assets if the same is sold/transferred after having held for more than one year. Any profits made on transfer of such long term capital asset is called long term capital gains (LTCG). Such LTCG is taxed at a flat rate of 10% after an initial exemption of one lakh every year provided securities transaction tax (STT) has been paid in respect of purchase and sale of such shares. While computing the long term capital gain in respect of listed equity shares, you are not entitled to take the benefit of the Cost Inflation Index. Since the shares were acquired before STT was introduced and since you have already paid STT at the time of sale of these shares, you are covered under Section 112A. In respect of shares that were acquired before 31 st January 2018, the market value of such shares on 31 st January 2018 shall be taken as the cost of such shares and thus any profit accrued till 31 st January 2018 on such shares comes tax-free in your hands.
As far as your question of rebate under Section 87A is concerned, you are eligible for a rebate under Section 87A since your total taxable income is less than the threshold limit of 5 lakhs. However, you will have to pay tax at the rate of 10% and less on ₹40,000 (balance LTCG after initial exemption of one lakh).
Balwant Jain is a tax and investment expert and can be reached at email@example.com and @jainbalwant on Twitter.