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Capital gain tax on listed Equity shares….
Capital gain tax on listed Equity shares….
Capital gain is profit or the gain which arises due to sale of assets such as land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and jewellery, shares and so on. Such assets are held by assessee as a Capital Assets. And when he sells these assets, Capital gain arises and hence Capital gain tax shall be applicable.
So, now that we know what a Capital gain tax is and where it is applicable, I am going to focus on one particular Capital asset, i.e sale of Listed equity shares.
Let's talk about tax provisions relating to gain on sale of listed shares in a stepwise manner…
Step 1- First of all you need to know whether shares purchased by you are listed or not in any of the recognized in stock exchanges in india.
Step 2- After that, see if those assets are held as Capital assets. Because even if the share are listed, it might not attract Capital gain tax, i.e Capital gain tax is only attracted if the shares are held as Capital assets.
Step 3 - Then, classify your Equity shares based on the period you have held them as capital. Capital Assets are of two types, one being long term Capital Assets and the other being short term Capital Assets. We will talk about them in details in the coming paragraphs.
So what are long term Capital Assets for Equity shares…
In the context of Equity shares, Capital Assets shall be equity shares in a company listed on a recognized stock exchange in India, securities listed on a recognized stock exchange in India, units of UTI, units of equity oriented mutual fund, zero coupon bonds
However, to be a long term Capital Assets, these assets have to be held by the assessee for a period of 12 months or more.
As per the section 10(38) of income-tax , any long-term capital gains arising on sale of equity shares listed on Indian stock exchange are fully exempt from tax to both residents and non residents.
And what are Short Term Capital Assets for Equity Shares…..
Well, Short Term Capital Assets are the same as Long Term Capital Assets with the twist that shares have been held for less than 12 months. Section 111A(2) states that short term Capital gain on equity shares shall be taxable at the rate of 15%.
What is the tax treatment of the assets not purchased by the assessee?
When any shares which are held as Capital assets is acquired through gift, will, inheritance and not because the assessee purchased it, the period held by the previous owner is included while determining whether it is a short term or a long-term Capital asset and tax is chargeable to tax accordingly.
