As we know, Capital Gains Tax are of two types:
In this article, our focus will be on the Short-term Capital Gain Tax. We will try to explore the intricacies of the subject in detail and learn the essential concepts.
Short-term Capital Gain Tax is the tax imposed on short-term capital gains. Short-term Capital Gains are those gains that are realized after selling the assets by holding it for less than the 36 months period. Any capital asset held by the taxpayer for a time of not over three years immediately preceding the date of its transfer will be considered as short-term capital asset. Though, in regard of certain assets like shares (equity or preference) which are listed in a recognized stock exchange in India (listing of shares is not mandatory if transfer of those shares happened on or before date of July 10, 2014), units of equity-oriented mutual funds, listed financial instruments like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 1 year rather than 3 years. An important point to be noted here is that period of holding to be assumed as 24 months instead of 36 months in case of unlisted shares of a firm or an immovable asset being land or building or both of them.
Now let us take a look at the technical as well as the legal aspect of the Short-term Capital Gains that would help us to understand the concept of Short-Term Capital Gains Tax in a better manner. Short-Term Capital Gains (STCG) emerging on account of sale of equity shares listed in a recognized stock exchange, units of equity oriented mutual fund and units of business trust i.e., Short-Term Capital Gains covered under the section 111A. Segment 111A is appropriate in the event of Short-Term Capital Gains emerging on transfer of equity shares or units of equity oriented mutual funds or units of business trust, which are transferred on or after 1-10-2004 through a perceived stock exchange and that transaction is subject to securities transaction tax (STT). The equity oriented mutual funds implies a mutual fund provided under area 10(23D) and 65% of its investible assets, out of complete proceeds are infused in equity shares of domestic firms. If the requirements of section 111A as provided above are fulfilled, the Short-Term Capital Gains is named as Short-Term Capital Gains covered under section 111A. Such gain is amount to tax at 15% in addition to surcharge and cess as found applicable. With effect from Assessment Year 2017-18, benefit of concessional tax rate of 15% shall be available even where STT is not paid, given that - transaction is undertaken on a perceived stock exchange situated in any International Financial Service Centre, and - consideration is paid or payable in overseas currency.
For the sake of computation of tax rate, short-term capital gains are categorized as:
Below listed are some of the occasions of Short-term capital gains as provided under section 111A:
Below listed are some of the occasions of Short-term capital gains not as provided under section 111A:
Below listed are some of the occasions of Short-term capital gains as provided under section 111A:
Under section 111A, Short-term capital gains tax is levied at 15% adding surcharge and cess as found applicable. Normal Short-term capital gains, i.e., Short-term capital gains other than covered under section 111A is charged to tax at normal rate of tax which is estimated on the basis of the complete taxable income of the taxpayer.
Basic exemption limit means the level of income up to which a person is not required to pay any tax which implies that there will be no tax liability if the income of the taxpayer falls below the basic exemption limit. The basic exemption limit applicable in case of an individual for the financial year 2020-21 is as follows:
Now suppose if the taxpayer could adjust the basic exemption limit against short-term capital gain. How would that work? The procedure is explained below:
A resident individual and resident HUF only can apply for adjustment of the exemption limit against short-term capital gain as provided under section 111A. Hence, a non-resident individual/HUF could not adjust the exemption limit against short-term capital gain as provided under section 111A. A resident individual or HUF can perform the adjustment of the short-term capital gain as provided under section 111A against the basic exemption limit but such adjustment is feasible only after performing the adjustment of other income. In other language, first income apart from short-term capital gain as provided under section 111A would to be adjusted against the exemption limit and then only the residual limit could be adjusted against short-term capital gain as provided under section 111A.
There is no deduction under sections 80C to 80U is allowed on short-term capital gains referred to in section 111A. However, such deductions can be claimed from Short-term Capital Gains other than covered under section 111A.
Short-term Capital Gain Tax is the tax imposed on short-term capital gains. Short-term Capital Gains are those gains that are realized after selling the assets by holding it for less than the 36 months period.
Any capital asset held by the taxpayer for a time of not over three years immediately preceding the date of its transfer will be considered as short-term capital asset.
Short-Term Capital Gains (STCG) emerging on account of sale of equity shares listed in a recognized stock exchange, units of equity oriented mutual fund and units of business trust i.e., Short-Term Capital Gains as provided under the section 111A. Segment 111A is appropriate in the event of Short-Term Capital Gains emerging on transfer of equity shares or units of equity oriented mutual funds or units of business trust, which are transferred on or after 1-10-2004 through a perceived stock exchange and that transaction is subject to securities transaction tax (STT).
Short-term capital gains are categorized into two types:
1) Short-term capital gains as provided under section 111A.
2) Short-term capital gains other than as provided under section 111A.
Short-term capital gains emerging on sale of equity shares listed in a recognized stock exchange, is chargeable to securities transaction tax and are as provided under section 111A. While, Short-term capital gains emerging on sale of equity shares other than through a recognized stock exchange are not as provided under section 111A.
Short-term capital gains as provided under section 111A is subject to tax rate of 15% in addition to surcharge and cess as found applicable. Normal Short-term capital gains, i.e., Short-term capital gains other than as provided under section 111A is charged to tax at normal rate of tax which is determined on the basis of the total taxable income of the taxpayer.
Basic exemption limit means the level of income up to which a person is not required to pay any tax which implies that there will be no tax liability if the income of the taxpayer falls below the basic exemption limit.
A resident individual and resident HUF only can apply for adjustment of the exemption limit against short-term capital gain as provided under section 111A. Hence, a non-resident individual/HUF could not adjust the exemption limit against short-term capital gain as provided under section 111A. A resident individual or HUF can perform the adjustment of the short-term capital gain as provided under section 111A against the basic exemption limit but such adjustment is feasible only after performing the adjustment of other income. In other language, first income apart from short-term capital gain as provided under section 111A would to be adjusted against the exemption limit and then only the residual limit could be adjusted against short-term capital gain as provided under section 111A.
The exemption limit is Rs. 2,50,000 for resident individual of the age below 60 years whereas the exemption limit is Rs. 3,00,000 for resident individual of the age of 60 years or above but below 80 years. Also, for resident individual of the age of 80 years or above, the exemption limit is Rs. 5,00,000.
There is no deduction under sections 80C to 80U is allowed on short-term capital gains referred to in section 111A. Though, such deductions can be claimed from Short-term Capital Gains other than as provided under section 111A.