Capital Gain Tax on shares purchase and sold

How are Capital Gains treated on gain of shares purchased in India from Stock Market. Below are FAQ, on treatment of profit and loss of shares sold and purchased

1. What is a Capital asset ?
A Capital asset is defined under section 2(14) of the I.T. Act, 1961 as property of any kind held by an assessee such as real estate, equity shares, bonds, jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses and personal effects.

2. What is Transfer?
Transfer has been defined under section 2(47) to include sale, exchange, relinquishment of asset, extinguishment of rights in an asset, etc. Certain transactions are not regarded as ‘Transfer’ under section 47

3. What is Capital Gain?
Gain on sale of following investment/assets is known as Capital Gain:

  • Shares
  • Units of a mutual fund
  • Bonds/debentures
  • Immovable property
  • Jewellery, paintings etc

4. What is Long term and Short Term Capital Gain?
When investments are held for more than 36 months, such gains are termed as Long Term Capital Gain. However, for shares, mutual funds, listed bonds & debentures, zero coupon bonds, the period is 12 months.

When investments held for less than 36 months, such gains are termed as Short Term Capital Gain. However, for shares, mutual funds, listed bonds & debentures, zero coupon bonds, the period is 12 months.

Capital gain on sale of Shares

4. Do I have to pay tax on sale of shares that I have purchased one year back?
No, since you have hold the shares for more than one year, no Income tax is payable. Also please ensure that Income tax exemption would be available only if::
1. Such shares are sold through a recognized stock exchange.
2. Securities Transaction Tax (STT) has been paid on the sale of such shares.

5. What is STT?
STT stands for Securities Transaction Tax. It is a tax paid for transactions made on a recognized stock exchange.

6. Is STT borne by the buyer or seller?
Securities Transaction Tax (STT) is levied on both buy as well as sell transactions. Hence it
has to be borne both by the buyer and the seller.

7. Do I have to declare sale of assets even if it is at no profit no loss?
It is relevant for transactions where STT is not paid and for claiming indexation benefit.

One Response to Capital Gain Tax on shares purchase and sold

  1. A M J REGO says:

    How is short term capital gain on sale of listed equity shares calculated. What are the admissible charges? For instance Brokerage, STT, Transaction charges etc. levied by the share broker, are they deductible.
    Since I do heavy trades on the exchange will I be taxed as a trader or an investor?

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