Question 1:      What types of Capital Gain will be on Sale of Shares?

Answer:              Capital Gain will be of Two Type:

(A) Long Term Capital Gain

(B) Short Term Capital Gain

Question 2:      What is Long Term Capital Gain?

Answer:    If we hold shares of a Company which is registered in Recognised Stock Exchange like NSE, BSE etc. more than 12 months then on Sale of Shares Long Term Capital Gain will be arise

Example: Suppose Mr. A has purchased 100 Shares of Reliance Industries Ltd. Dated-01.04.2019 & sell the same Dated-15.04.2020 then in this case Long Term Capital Gain will be arise.

Question 3:      What is the Tax Rate in case of Long Term Capital Gain on Shares?

Answer:    As per Section 112A Tax Rate on Long Term Capital Gain from Shares is 10% over & above Rs. 1 lakh a year.

Example: Suppose Mr. A Sells his Share after holding more than 1 year & Long Term Capital Gain on Sale of Shares is Rs. 15 lakhs then Mr. A has to Pay Tax @10 on Rs. 14 lakhs (Rs.15 lakhs- Rs. 1 lakhs)

Question 4:      What is the Short Term Capital Gain?

Answer:              If we hold Shares of a Company which is registered in Recognised Stock Exchange like NSE, BSE etc. for 12 months or less then on Sale of Shares Short Term Capital Gain will be arise.

Example: Suppose Mr. A has purchased 100 Shares of Reliance Industries Ltd. Dated-01.04.2019 & sell the same Dated-06.12.2019 then in this case Short Term Capital Gain will be arise.

Question 5:      What is the Tax Rate in case of Short Term Capital Gain on Sale of Shares?

Answer:              As per Section 111A Tax Rate is 15% when STT is paid.

Question 6:      Whether Securities Transaction Tax (STT) will be applicable on Transaction on Shares?

Answer:              Yes, STT will be paid in both cases i.e. on Purchase of Share & on Sale of Shares.

Question 7:      What is the treatment of Long Term Capital Loss?

Answer:              Long Term Capital Loss will be set off against Long Term Capital Gain only. It can be carried forward to next 8 A.Y. & set off against Long Term Capital Gain only.

Question 8:      What is the treatment of Short Term Capital Loss?

Answer:            It can be set off against the Short Term Capital Gain or Long Term Capital Gain. It can be carried forward to next 8 A.Y. and set off against LTCG or STCG

Question 9:      Whether gain on share will be Capital Gain or Business Income?

Answer:             As per CBDT Circular 6/2016 where the assesse itself, irrespective of the period of holding the listed shares and securities, opts to treat them as stock-in-trade, income arising from transfer of such shares/ securities would be treated as its business income.

In respect of listed shares and securities held for more than 12 months, if the assesse desires to treat the income arising from the transfer as Capital Gain. As per Board Circular No. 4/2007 it is also depend upon

  • Treatment in the Books of A/C
  • Quantum of Sale & Purchase
  • Holding Period
  • If objective is to earn dividend, then it is capital assets.

Question 10:    Whether we can save our Long Term Capital Gain?

Answer:             Yes, You can save your Long Term Capital Gain if you invest your Long Term Capital Gain for Purchase of One Residential House in India as per Section 54F.

Question 11:     What are the conditions to be fulfill to save Long Term Capital Gain?

Answer:              Following Conditions to be followed:

  • Applicable for Individual or HUF.
  • Purchase One Residential House within 1 Year before or 2 Years after date of transfer or construction complete within 3 years from date of transfer.
  • Amount of Exemption– If Cost of New House > Net Consideration of assets transferred then Full Long Term Capital Gain will be exempt.

Example- Cost of New House Purchase is Rs. 50 lakhs & Long Term Capital Gain is Rs. 40 lakhs then full Long Term Capital Gain will be exempted.

If cost of new house < Net Consideration of assets transferred, the exemption=

Cost of New House x Capital Gains/Net Consideration

Example- Cost of New House is Rs. 50 lakhs, Long Term Capital Gain is Rs. 60 lakhs & Net Consideration is Rs. 90 lakhs then  Rs. 50 lakhs x 60 lakhs/90 lakhs= Rs. 33.33 lakhs Long Term Capital Gain will be exempt.

  • Assessee owns not more than one other house property on the date of transfer (excluding new house)
  • New house should not be transferred for 3 years from the date of its acquisition otherwise Capital Gain taxable in P.Y of transfer of new assets & treated as Long Term Capital Gain.

Question 12:    Whether dividend received on Shares from Domestic Company will be taxable or exempt?

Answer:       As per Section 10(34) Dividend u/s 115-O is exempt from tax in hands of shareholder. However, exemption under section 10(34) is not available for dividend taxable u/s 115BBDA i.e. if dividend exceeds Rs. 10 lakhs in certain cases. If dividend received exceeds Rs. 10 lakhs then such dividend is taxable in hands of shareholder @10% and the company also pays CDT u/s 115-O on such dividend.

Example: Suppose Mr. A has received dividend Rs. 4,52,500 on Reliance Industries Ltd. Shares then it will be exempt u/s 10(34) in the hands of shareholder

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