One Stop Guide on Capital Assets and the Taxability.
Capital Asset – Capital Assets mean any property that helps you generate income or revenue over a long period of time. The benefits that we derive from such assets are not restricted to one year. This includes buildings, land, stocks, bonds, etc. This Capital Asset can be further classified as short-term and long-term capital assets on the basis of their Period of holding.
Short-term Capital Asset
Capital assets held for not more than 36 months immediately before the date of transfer shall be deemed as short-term capital assets. However, the following assets held for not more than 12 months shall be treated as short-term capital assets:
- Equity or preference shares in a company that are listed in any recognized stock exchange in India;
- b) Other listed securities;
- c) Units of UTI;
- d) Units of equity-oriented funds; or
- e) Zero Coupon Bonds.
Unlisted shares and immovable property (being land or building or both)held for not more than 24 months immediately before the date of transfer shall be treated as short-term capital assets.
Long-term Capital Asset
Capital Asset held for more than 36 months or 24 months or 12 months, as the case may be, immediately preceding the date of transfer is treated as a long-term capital asset.
Capital Gain Tax
Any profit or gain that arises from the sale of capital assets is known as Income from capital gains. This Capital Gain is taxable in the year in which the transfer of the capital asset takes place which is known as Capital gain tax. Further, capital gains are also classified under Short Term Capital Gains and Long Term Capital Gains.
Tax Rates on STCG and LTCG on shares
(A) Tax rates on short-term capital gain:
- STCG covered under Section 111A are taxable at the rate of 15%, which is applicable in the following cases-
- STCG arising on the sale of equity shares listed in a recognized stock exchange, which is chargeable to STT.
- STCG arising on the sale of units of equity-oriented mutual funds sold through a recognized stock exchange which is chargeable to STT.
- STCG arising on the sale of units of a business trust
- STCG arising on the sale of equity shares, units of an equity-oriented mutual fund, or units of a business trust through a recognized stock exchange located in any International Financial Services Centre and consideration is paid or payable in foreign currency even if the transaction of the sale is not chargeable to securities transaction tax (STT).
- STCG other than covered under Section 111A as stated above is charged to tax at the normal rate (i.e., applicable slab rates), based on the total taxable income of the taxpayer.
(II) Tax rates on Long-term capital gain:
(1)The long-term capital gain on shares is charged to tax at the rate of 10% in the following cases:
- Long-term capital gains arising from the sale of listed securities exceeding Rs. 1,00,000 (Section 112A);
- Long-term capital gains arising from the transfer of any of the following assets:
- Any security which is listed in a recognized stock exchange in India
- Any unit of UTI or mutual fund (whether listed or not) and
- Zero coupon bonds
LTCG is charged to tax at the rate of 20% in other cases
Let’s understand this with an example
Mr. X purchased 100 equity shares of Y Ltd. @ Rs. 1,400 per share from the Bombay Stock Exchange in December 2021. These shares were sold in BSE in August 2022 @ Rs. 2,000 per share (STT was paid )
Period of holding- less than 12 months, STCG tax would be payable.
Calculation of STCG = Full value consideration
Less: Expenses incurred exclusively for such transfer
Less: Cost of acquisition
Less: Cost of improvement
Solution: Rs. 2,00,000 Less Rs. 1,40,000 = Rs. 60,000
This profit of Rs.60000 will be taxable @ 15% (plus surcharge and cess ), being covered under section 111A
Thus the short-term capital gain tax liability = 15% of 60000
= 9000 + 4% cess
= Rs. 9360
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