Taxation of Income Earned from Selling Shares
Gains From Equity Shares
a. Short-term capital gains and losses
If equity shares listed on a stock exchange are sold within 12 months of purchase, the seller may make short term capital gain or incur short-term capital loss.
The seller makes short-term capital gain when shares are sold at a price higher than the purchase price.
Calculation of Short-term capital gain = Sale price (-) Expenses on Sale (-) Purchase price
B. Short-term capital gains and losses
If equity shares listed on a stock exchange are sold after 12 months of purchase, the seller may make long-term capital gain or incur long-term capital loss.
Before the introduction of budget 2018, long-term capital gain made on sale of equity shares or equity-oriented units of mutual fund was exempt from tax under Section 10(38)
As per the provisions of the Financial Budget of 2018, if a seller makes long term capital gain of more than Rs. 1 lakh on sale of equity shares or equity-oriented units of mutual fund, the gain made will attract a capital gains tax of 10% long-term capital gains tax. Also, the benefit of indexation will not be available to the seller. These provisions apply to transfers made on or after 1 April 2018.
2. Taxation of gains from equity shares
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Short term capital gains are taxable at 15%. What if your tax slab rate is 10% or 20% or 30%? Special rate of tax of 15% is applicable to short term capital gains, irrespective of your tax slab. Also, if your total taxable income excluding short term gains is below taxable income i.e Rs 2.5 lakh – you can adjust this shortfall against your short term gains. Remaining short term gains shall be then taxed at 15% + 4% cess on it.
b. Tax on long-term Capital gains
Long term capital gain on equity shares listed on a stock exchange are not taxable up to the limit of Rs 1 lakh.
As per the amendments in budget 2018, the long term capital gain of more than Rs 1 lakh on the sale of equity shares or equity-oriented units of the mutual fund will attract a capital gains tax of 10% and the benefit of indexation will not be available to the seller.These provisions apply to transfers made on or after 1 April 2018.
