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Capital gains tax rate

17 April 2012

Hi,

I am a retail stock market investor. I bought Rs.1 lac woth of shares in Jan 2011 and Rs.50K worth of shares in Sept 2011. I want to sell them soon. If I sell, I am expecting Rs.2.25 lacs on sale of Rs.1 lac shares and Rs.75K on sale of Rs.50K shares. In total, I will get Rs.3 lacs with a profit (gain) of Rs.1.5 lacs. I understand that Rs.2.25 lac constitues LTCG and Rs.75K constitues STCG.

How to compute my income tax liability on this share sale? I fall in 20% tax bracket

Under what section of IT Act does this come?

Is there a way I can save on tax by investing the sale money in another set of shares, mutual funds, long term FD, life insurance policy, etc? I cannot buy house because I don't have enough money

Thanks in advance,

Praveen

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Devendra (Chartered Accountant) (4775 Points)
Replied 17 April 2012

If the above shares are sold through a recognized stock exchange, then the Long Term Capital Gain is exempt u/s 10(38) of the Income Tax Act, 1961. You will be liable to pay tax only on STCG of Rs. 75000 @ 15%. Further Chapter VI A deductions such as LIC premium, PPF Deposit, Mediclaim, Donations, Long Term FD will not be allowed to be deducted from STCG. You can deduct them from the Income from other heads ie. Income from Salary, House property, Other sources or any Business Income.

But if the Shares are not sold through Recognized Stock Exchange, then the LTCG will be taxable @ 20%. You can invest the LTCG amount in purchasing Bonds of NHAI and NREC. But you will have to invest it before six months from the date of transfer of the above shares. You will have to pay Income Tax STCG earned.

Regards,

Devendra Kulkarni

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