The income earned from selling of shares can be treated either as income from business or income from capital gains. In this article, we will discuss about the taxability of shares from shares and adjustment of profit and losses arising from shares – listed and unlisted.
Any income earned from an individual is subject to tax. The percentage of tax that will be charged on the income earned by an individual is defined in Income Tax Act, 1961.
Taxability of Long Term and Short Term Capital Gains for Listed Shares
The taxability charges on Long Term Capital Gains for listed shares was introduced through the Union Budget of Assessment Year 2019-20. They chargeable to tax 10% on amount excess of ₹1 lac. It is applicable on transfers made after 1st April, 2018. On the other hand, the Short Term Capital Gains for listed shares are chargeable to tax @15% irrespective of the amount.
| Particulars | Taxes on Long Term Capital Gains | Taxes on Short Term Capital Gains |
|---|---|---|
| Securities Transaction Tax (STT) paid on sale of shares | NIL for capital gains up to Rs. 1 lac, if the minimum holding period is 1 year | 15%, if held for less than 1 year. |
| Non STT paid on sale of shares | 20% with indexation or 10% without indexation. Minimum holding period is 2 years. | As per the Income Tax Slab plus 3% cess plus surcharge, if applicable. |
Taxability of Long Term and Short Term Capital Gains for Unlisted Shares
Regarding the taxability of unlisted shares, where no formal market exists for trading, CBDT has made a clarification through Circular F.No.225/12/2016/ dated 02nd May, 2016 that income arising from unlisted shares would be considered under the head “Income from Capital Gains”, irrespective of period of holding. The Long Term Capital Gains from unlisted shares are charged to tax @20% with indexation or 10% without indexation. Whereas, the Short Term Capital Gains are chargeable to tax as per Income Tax slab rate.
Adjustment of Profits arising from transfer of shares
– Short Term Capital Gains
In case individual is having income less than below the exemption limit for the prevailing financial year after excluding the income from Short Term Capital Gains, then the individual can adjust this income from Short Term Capital Gains up to the exemption limit and tax @15% shall be charged on the remaining amount.
-Long Term Capital Gains
In case of income from Long Term Capital Gains from transfer of shares, the amount shall be charged @10% on the amount excess of ₹1 lac. The individual cannot adjust this income even if his below the exemption limit.
Adjustment of Losses arising from transfer of shares
When the sale value of shares is less than the purchase value of shares, it is known as Capital Losses. The adjustment of losses is done as follows:
– Short Term Capital Losses
The Short Term Capital Losses from transfer of shares can be set off against Long Term Capital Gains or Short Term Capital Gains from any capital asset. However, if the loss is not set off completely, then the loss can be carried forward for a period of 8 years. It must be noted that this loss can be carried forward only while filing the Income Tax Return. Without the filing of Income Tax Return, this loss cannot be carried forward.
-Long Term Capital Losses
Until the Budget of Assessment Year 2019-20, the losses from Long Term Capital of shares could
neither be adjusted nor carried forward. It was exempted from tax also. By this Budget, capital gains made in excess of ₹1 lac are to be taxed @10%. The Long Term Capital Losses can be set off against Long Term Capital Gains. If the loss is not completely set off, then it can be carried forward for a period of 8 years against the Long Term Capital Gains. This again can be done only through filing of Income Tax Return.
Please note that the above provisions are applicable to only resident individuals and HUF!
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