Date:22/01/2006 URL: http://www.thehindubusinessline.com/bline/iw/2006/01/22/stories/2006012201601300.htm

Back How is capital gain taxed?

T. Banusekar

I HAVE earned capital gains from sale of shares in the financial year 2004-05. How is the capital gain to be taxed?

Ravi Singh

Reply

If the gain is long term and if securities transaction tax has been paid at the time of sale of the shares, such gain will be exempt. If securities transaction tax has not been suffered at the time of sale of the shares, which are long term assets, the gain will be charged to tax in accordance with Section 112 of the Act. Under this section tax has to be charged on the capital gain computed with the benefit of indexation at 20 per cent. In such a case, if 10 per cent of the gain computed without the benefit of indexation is lower than 20 per cent of the gain computed with the benefit of indexation, the excess over 10 per cent of the gain computed without the benefit of indexation will be ignored in computing the tax liability. If the gain is short term and if securities transaction tax has been paid at the time of sale of such shares, the gain will be taxed in accordance with Section 111A at 10 per cent of the gain. If the gain is short term and if securities transaction tax has not been paid at the time of sale of shares the gain will be taxed in accordance with the normal provisions at the slab rates applicable to you.

You may note that a share is treated as a long-term capital asset if it is held for a period exceeding 12 months and is treated as a short-term capital asset if it is held for 12 months or less.

You may also note that securities transaction tax is payable on sale of shares on or after January 1,2004 through a recognised stock exchange.