Short Term Capital Gain Tax: An Overview

Profits obtained from selling assets—ranging from land to equity—are known as capital gains. The Income Tax Act, 1961 necessitates taxation of these gains as part of one's income. Differentiating short-term from long-term gains hinges on the holding period of such assets.

Short Term Capital Assets: Key Insights

Assets held for 36 months or less (24 months for immovables, except equity shares with a 12-month criterion) qualify as short term. Understanding the tax on these requires calculating short term capital gains (STCG).

Calculating STCG: A Simple Method

The formula for calculating STCG is:

Capital Gains (CG) = (Sale Value - (Expenses + Cost of Acquisition + Cost of Improvement))

For instance, Mr. Gupta's property sale involves calculating STCG based on the sale price, expenses, and acquisition cost.

STCG Tax Rate: Insights into Section 111A

• Covered by Section 111A:
  • Gains from listed equity shares.
  • Short term gains from Equity Oriented Mutual Funds sold on recognized exchanges.
  • Sales of business trust units on International Financial Service Centre exchanges.
• Not Covered Under Section 111A:
  • Sales of unlisted equity shares.
  • Gains from non-equity Mutual Fund units.
  • STCG from bonds, debentures, and assets like gold.

Tax Implications: Understanding Rates

• If Securities Transaction Tax Applies:
  • Tax Rate: 15% plus surcharge and cess.
• Without Securities Transaction Tax:
  • Taxation: Incorporated into returns, taxed per personal income slabs.

Example Case: Tax Liability Comprehension

Consider Ms. Agarwal:

• Buys equity shares at Rs. 100, sells at Rs. 130.
• Brokerage: Re. 1 per share.
• STT paid.
• Total Tax Liability for 2018-2019: Rs. 1,58,444.

Key Considerations

• Loss Set-Off: Short term losses offset gains or carry forward for 8 years.
• Consult Experts: Essential for short term investors to understand tax impacts; professional advice is recommended.

Disclaimer: This content provides insights; seek professional advice for tailored financial guidance.

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