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Taxation of Income Earned from Selling Shares

Taxation of Income Earned from Selling Shares

This article is for better understanding of Treatment of Income from Sales of shares or other securities. Here I am explaining about the possibilities one can treat the income from sale of shares and what are the benefits of it
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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

 

a. Tax on short-term capital gains
 

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.

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