Short term capital gain as under Section 111A
Gains from equity shares listed on a recognised stock exchange having a holding period of less than 12 months are considered as short term capital gains.
Conditions for Section 111A is applicable in the case of STCG
Section 111A is applicable in the case of STCG on the purchase or sale of
- Equity shares or equity-oriented mutual fund units
- Transferred through a recognised stock exchange
- Such transaction is liable to securities transaction tax (STT)
Equity oriented mutual fund means a mutual fund specified under section 10(23D) and 65% of its investible funds, out of total proceeds are invested in equity shares of domestic companies.
Examples covered under section 111A
- STCG arising on sale of equity shares listed in a recognised stock exchange, which is chargeable to STT.
- STCG arising on sale of units of equity oriented mutual fund sold through a recognised stock exchange which is chargeable to STT.
- STCG arising on sale of units of a business trust
- STCG arising on sale of equity shares, units of equity oriented mutual fund or units of a business trust through are cognised stock exchange located in any International Financial Services Centre and consideration is paid or payable in foreign currency even if transaction of sale is not chargeable to securities transaction tax (STT).
Tax rate applicable
Short-term capital gain under section 111A is taxed at a flat tax rate of 15% with applicable cess.
Important Points
- Rebate u/s 87a will be available if total income is less than 5 lakhs i.e up to Rs 12,500 of tax liability as per current income tax regime.
- If your total income including STCG after applicable tax deductions is below Rs 2.5 Lakh, then your total tax liability is nil and also no liability will arise us/ 111A as deduction up to the basic tax exemption limit is allowed
- Income tax Laws do not allow any deduction under section 80C to 80U from the short term capital gains referred to section 111A
Example
Santosh has a taxable salary income of only Rs 2 lakh and a short-term capital gain on the sale of equity shares of Rs 4 lakh. He also has Rs 50,000 as Income from Other Sources. Calculate STCG Tax applicable.
Ans:
You have to add income from other sources of Rs 50,000 to the total taxable salary thereby making it Rs 2 Lakh. As there is a shortfall in the absorption of the basic income tax exemption limit of Santosh by Rs 50,000 , short-term capital gain on the sale of equity can be adjusted to the extent of Rs 50,000.
Tax will be applicable on a short-term capital gain of Rs 3.5 lakh (Rs 4 lakh – Rs 50,000) at a flat rate of 15%
