Income Tax Provision from Sale of Shares

i. Long Term Capital Gain (LTCG) : If equity shares listed on a stock exchange are held and sold after 12 months of purchase, the seller may make a long-term capital gain (LTCG) or incur a Long-term capital loss (LTCL).

ii. Short Term Capital Gain (STCG) : If equity shares listed on a stock exchange are held and sold within 12 months of purchase, the seller may make a short-term capital gain (STCG) or incur a short-term capital loss (STCL).

Tax on LTCG :

Long-term Capital Gain on equity shares listed on the recognized stock exchange or equity-oriented Mutual Funds on which Security transaction tax (STT) is paid is taxed at 10% if the gain is above Rs 1 Lakh during the financial year. STT is applicable on all equity shares sold or bought on a stock exchange.

If a seller makes a long-term capital gain of more than Rs.1 lakh on the sale of equity shares or equity-oriented units of a mutual fund, the gain made will attract a long-term capital gains tax of 10% (plus applicable cess). Also, the benefit of indexation will not be available to the seller.

Tax on STCG

Short-term Capital Gain on equity shares or equity-oriented Mutual Funds are taxed at 15.6%. Short-term Capital Gain on shares other than equity shares listed on the recognized stock exchange or Mutual Funds other than equity-oriented Mutual Funds is taxed as per normal slab rates. The seller makes short-term capital gains when shares are sold at a price higher than the purchase price. Short-term capital gains are taxable at 15%.

Tax Rates 

Long-term Capital Gain: LTCG are added to the taxable income of the person and are taxed as per the slabs on which the taxable income of the person falls. Thus, it can be said that the income from long term capital gain is taxed as per income tax slabs applicable to the assessee.

Short-term Capital Gain: STCG are taxable at a flat rate of 15% irrespective of one’s income or tax slab he falls into.

Calculation of Tax

Long term Capital Gain = The gain is added to the total taxable income of the assessee and the tax is calculated on the total taxable income as per income tax slabs.

Short-term capital gain = Sale price –  Expenses on Sale minus the Purchase price