Capital Gain on Sale of Listed Shares

Types of Investments in the Stock Market

1. Equity Investments

• When shares are held for investment purposes, the profit or loss shall be taxed under capital gains.

2. Futures & Options (F&O) Trading

• Derivatives-based trading, classified as business income under Income Tax laws.
• Taxed as per individual slab rates (no capital gain benefit).
• Expenses like brokerage, internet, and advisory fees can be deducted.

3. Intraday Trading

• Speculative business income, taxed at individual slab rates.
• No capital gain treatment, and losses can only be set off against speculative profits.

CAPITAL GAIN ON SALE OF SHARES

Transfer of a capital assets

The tax under 'capital gains' arise only where the capital asset is transferred.

Capital assets are classified into:

a) Long-term capital assets

b) Short-term capital assets

The classification is based on the holding period before the transfer by the assesses.

For Listed shares:

• Long-term capital assets - Held for 12 months or more
• Short-term capital assets - Held for less than 12 months

Computation of Capital Gain

Cost of acquisition for shares acquired on or before 31.01.2018

a) Actual cost of acquisition or

b) Lower of the

i) Fair market value as on 31.01.2018 or sale amount of transfer of assets

Whichever is higher.

(Prior to 31.01.2018 LTCG on shares was exempted)

Exemptions available in computing of Capital gains

Tax on Long-term Capital Gain of Equity Shares 112A

Capital gain arising on the transfer of equity share in a company or unit of an equity-oriented fund or unit of business trust shall be computed based on section 112A.

Tax on short-term capital gain on Equity Shares 111A

Note:

• Maximum exemption on LTCG under Section 112A in a financial year: ₹1,25,000.
• For resident individuals and HUFs, unutilized basic exemption limit can be adjusted against LTCG/STCG
• Final tax payable is increased by surcharge and 4% health & education cess.
• No Chapter VI-A deductions are allowed against capital gains.
• 87A Rebate - Not Available for Special income

Capital Gain Loss

• Long term loss - Can set off against Long-term Gain
• Short Term Loss - Set off against LTCG and STCG
• Carry forward for 8 year

Note: To carry forward capital gain losses, the income tax return must be filed on or before the due date u/s 13.

TIPS FOR ITR Filing - Capital Gain on Shares

• ITR-1 or ITR-4 can now be used if LTCG is up to ₹1,25,000.
• Capital gain details can be downloaded from the AIS portal.
• Scrip-wise reporting is not required, as per CBIC directions.

Example 1

• Mr. A purchased 30 shares of MRF Ltd in the year 2000 at ₹15 per share.
• He sold all the 30 shares in the Financial Year 2024-25 for ₹1,25,000 each.
• The Fair Market Value (FMV) of MRF share as on 31.01.2018 was ₹90,000.

Compute the Long-Term Capital Gain (LTCG) of Mr. A for the Assessment Year 2025-26 under Section 112A.

Answer 1

Computation of Capital Gain on Listed shares of Mr A for AY 2025 - 2026