Short Term Capital Gain Tax on Shares in India
Investors need to pay close attention to their tax expenses across all of the asset classes they have selected.
This is due to the fact that taxes have an impact on your earnings, which may be very different from what you had anticipated. Additionally, taxes on various asset classes, or subcategories of investments, might vary greatly. However, one thing holds true irrespective of the investment: all of your investments have a tax component.
“An investment in knowledge pays the best interest.” — Benjamin Franklin
Stocks are assets that are listed on a reputable stock exchange and have been owned for less than a year. Short-term capital gains are considered as the earnings made through them.
Government securities, debentures, equity-oriented mutual funds, UTI units, and zero-coupon bonds are some examples of these shares.
If short-term capital gains on shares are subject to taxation is a common query from people.
They do, that’s the solution!
Profits from the selling of shares are subject to taxation since they fall under the category of income under capital gains.
What is Short Term Capital Gain Tax on shares?
The tax collected on the profits received from the selling of shares is known as the short-term capital gain tax on shares. Short-term capital gain taxes only apply to shares that are recognized as short-term capital assets.
The profits made through shares are separated into two groups in order to establish the STCG tax rate on shares easily:
- Gains in short-term capital covered under Section 111A.
- Gains made in the short term do not fall under Section 111A.
Tax on short term capital gain that fall under Section 111A
Short-term capital gains on shares that fall within this category will be subject to income tax at a rate of 15%. Additionally, they would be subject to surcharges and taxes where ever appropriate.
Here are several instances of STCG that fall under Section 111A:
- Gains from the sale of equity shares that are listed on a reputable stock exchange
- Gains from the selling of mutual funds with an emphasis on equities that were listed on a reputable stock market and sold there.
- Gains through the selling of units of a reputable company trust, equity shares, or mutual funds with an emphasis on the stock market.
At the Bombay Stock Exchange, Ms. Smriti made the decision to sell units of her equity-oriented funds after holding them for eight months.
Since Section 111A applies to short-term capital gains generated by equity-oriented funds, a tax of 15% would be assessed on those gains. If considered essential, a surcharge and a cess would also need to be paid.
Short term capital gain tax rate that do not fall under Section 111A
A standard rate of tax would apply to the income tax on short-term capital gains on shares other than those covered by Section 111A.
The STCG tax on shares would be determined based on the income tax bracket of those who pay taxes.
Here are a few STCG examples that are not protected by Section 111A:
- Profit made from selling equity shares that aren’t listed on a reputable stock exchange.
- Profit earned via the sale of non-equity shares of stock.
- Profit earned through debt-focused mutual funds.
- Profit from government securities, bonds, and debentures.
- Profit earned from assets other than shares.
Lets understand this with the help of an example:-
Mr. Singh, a 40-year-old salaried worker, earns Rs. 8,40,000 each year.
To his debt money, which he kept for eight months, he made the decision to sell.
As short-term capital gains are not covered by Section 111A and are instead derived from the sale of borrowed funds, a regular rate of tax would be applied to them.
The amount of tax due by Mr. Singh would be determined by his gross income, which is made up of both his salary and the proceeds from the sale of shares. Additionally, a tax rate based on his tax bracket would apply.
Tips to Reduce the Burden of STCG on Shares
- The short-term capital loss on shares that an individual has can be offset by other short-term or long-term capital gains. However, people should exercise restraint while using this specific tax-saving technique.
- Losses incurred by individuals may be carried forward for tax purposes. Such losses may be carried forward by an individual for a maximum of 8 fiscal years.
Investors in shares have limited options for reducing their STCG tax liability. People can always choose a tax-saving mutual fund programme to increase their earning potential and reduce their tax liability.