Similar to income from salary and rental income, the sale of shares is also taxable in India. The taxability of profit or loss deriving from the sale of stocks in the country, on the other hand, is largely determined by the purpose, nature, and holding period of such stocks.
Any gains resulting from such a transfer are considered business earnings if the scrip was held as stock-in-trade. If the person has held the stocks as an investment, however, the gains will be taxed under “capital gains”.
According to Naveen Wadhwa, DGM, Taxmann, gains arising in the hands of the investors can be categorized into long term and short term based on the period of holding of such stocks.
“In the case of listed equity shares, the period of holding is 12 months, however, in the case of unlisted equity shares, the period of holding is 24 months. In other words, if the listed equity shares are sold after holding them for more than 12 months then the resultant profit or loss is considered as long-term capital gain or loss. Else, it is treated as short-term capital gain or loss. The period of 12 months is considered as 24 months in case of unlisted shares,” Wadhwa said.
Agam Gupta, spokesperson of Share India Securities Ltd points out that the rates may vary according to the asset and the amount of transaction.
Wadhwa went on to say that long-term capital gains arising from the sale of specified listed securities (equity shares, equity-oriented mutual funds, units of business trust, or equity-based ULIPs) are not taxed if the gain from the aforementioned securities does not exceed Rs one lakh during the year.
Where the amount of capital gain exceeds Rs one lakh, Wadhwa said that the excess amount is chargeable to tax at the rate of 10 percent.
"This benefit is available if securities transaction tax (STT) is paid at the time of sale of such securities. There are few more conditions to avail the concessional tax rate of 10 percent. The long-term capital gains arising from other securities is taxable at the rate of 10 percent or 20 percent, as the case may be," he adds.
It's important to note that the short-term capital gains arising from the sale of the above-referred specified securities are taxable at the rate of 15 percent if STT is paid at the time of sale of such securities. In any other case, short-term capital gains are charged to tax at normal tax rates as applicable in the case of the investor.
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