Capital gain on transfer of shares
Capital gains taxation ever has been an important matter for the attention of the Finance Minister in Budget, so this year not being an exception. Friends today’s write-up I am going to include the taxation of LONG TERM CAPITAL GAIN (LTCG) arising from a sale of listed shares and what about the amendment for this finance act 2018.
If you are planning to invest in equity shares for the long-term, this blog may help you to plan the same.
Capital Gain Means the profits or loss whatever generates from by purchase and sale of equity shares be taxed under the head ‘Capital gains’ or ‘profit or gains from business Tax liabilities on taxpayer trading in equity shares for investment purpose are explained below-
What is a capital asset?
As per section 2(14) of Income Tax Act 1961, Capital assets means property of any kind held by the assessee whether or not connected with business or profession and includes many other assets encompassing Shares.
When capital gain arises?
According to Section 45, Any profit or Loss generates from a transfer of a capital asset effected in the previous year shall be chargeable to income tax under the head ‘capital gains’ & shall be deemed to be the income of the previous year in which transfer took place subject to certain exceptions.(Will discussed later)
Are exemptions available?
Exemptions provided in section 54, 54D, 54EA, 54EB, 54EC, 54ED, 54EE, 54F, 54GB of Income Tax Act,1961 etc.
There is an exemption available u/s 10(38). As per the existing provisions of10(38), income arising from a transfer of the long-term capital asset, being equity shares, where such transaction is chargeable to securities transaction tax, is exempt from capital gains.
listed in Recognized Stock Exchange in India means a security that is held for more than 12 months immediately preceding the date of transfer.
The Government introduces a long-term capital gain of 10% on such transfer over & above the gains of Rs. 1,00,000. The Basic factor behind these concepts is to bring the taxation of income on a transfer of shares with income from the manufacturing sector as the present regime is inherently biased against manufacturing at par. It ends the diversion of funds towards financial assets from the manufacturing sector &the abusive use of tax arbitrage opportunities created by granting such exemption.
However, through proper planning, a tax can be saved to a certain extent.
• The threshold of Rs.1,00,000 per financial year as Capital Gains up to Rs. 1,00,000 are not brought to the tax net.
• If the total taxable income of the assessee is below 5 lakh then he can claim the gains as business income and pay the tax @5% only Instead of 10% or 15% above maximum amount not chargeable to tax.