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Tax Pertaining On Capital Gains From Stocks In One Financial Year

Capital gain from stocks is not taxable unless the net annual income of the financial year is more than 2.5 lakhs.

Speaking of the taxes pertained if the annual income is more than 2.5 lakhs are:

  1. Long term capital gains
  2. Short term capital gains

Tax On Long Term Capital Gains

According to section 112 of the Income tax Act,1961 when the total income of an individual includes any income, arising from the transfer of a long-term capital asset, is chargeable under the head Capital gains, the tax payable by the individual on the total income shall be the aggregate of the following:
  1. In the case of any individual or Hindu undivided family being a resident of India

    1. The amount of income tax payable on the net total income as reduced by the amount of such long-term capital gains, had the total income so as reduced been his total income.
    2. The amount of income-tax calculated on such long-term capital gains is at the rate of 20%.
      Provided that where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, i.e. 2.5 lakhs, then in such a long term, capital gains shall be reduced by the amount by which the total income as so decreased, falls shorter than that of the maximum amount which is not chargeable to income tax and then the amount of income tax calculated on the balance is at the rate of 20%.
       
  2. In case of a domestic company,

    1. The amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income so as reduced been his total income.
    2. The amount of income-tax calculated on such long-term capital gains is at the rate of 20%.
       
  3. In case of a non-resident individual or a foreign company

    1. The amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income so as reduced been the total income.
    2. The amount of income-tax calculated on such long-term capital gains at the rate of twenty 20%.
      Exception: Where the gain arises from transfer of capital asset that is referred to in sub-clause (iii)
    3. The amount of income tax with long-term capital gains arising from the transfer of a capital asset, that is being unlisted securities or shares of any company not being a company in which the public are materially interested, which is calculated at the rate of 20% on the capital gains in respect to such asset is computed without giving any effect to the 1st and 2nd proviso to section 48.
       
  4. In any other case of a resident of India:

    1. The amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income so as reduced been his total income.
    2. The amount of income-tax calculated on long-term capital gains at the rate of twenty 20%.

(2) In a case where gross total income of an individual includes any income from the transfer of a long term capital asset, then the gross total income shall be reduced by the amount of that income and the abstraction under Chapter VI-A shall be allowed as the gross total income as so reduced will be the gross total income of the individual.

(3) In a case where the total income of an individual includes any income from the transfer of a long term capital asset, then the overall income shall be reduced by the quantity of that income and also the rebate under section 88 shall be allowed from the tax on the entire income as so reduced.

Tax On Short Term Capital Gains

According to section 111A of the Income tax Act, 1961, (1) there the net total income of any individual includes any income that is chargeable under the head as "Capital gains", arising from transfer of any short term capital assets, or an equity share holder in any company or an unit of any equity oriented fund or an unit of any business trust then:
  1. The transaction of sale of those equity shares or unit are always entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 will come in force.
  2. Such transaction is always chargeable to the securities transaction tax under that very Chapter.

The tax payable by an individual on the total income shall be the average of:

  1. The amount of income tax calculated on such short term capital gains is at the rate of 15%.
  2. The amount of income tax payable on the remaining amount of the total income as of such the balance amount were the total income of the individual.
Provided that in the case of any individual or Hindu undivided family, being a resident of India, where the net total income as deduced by such short term capital gains is below the net total maximum amount allowed and which is not chargeable towards income tax, then those short term capital gains shall be subtracted by the amount by which the total income as that of reduced is falling short of the total maximum amount which is not chargeable whatsoever to income tax and the tax on the remaining amount of such short term capital gains shall be at the rate of 15%.

There is numerous other case scenarios that can be taken in consideration during calculation of tax on annual income but these are the most common ones. In a nutshell I would conclude by saying while investing money in stocks always try to invest in a long term basis for better returns and less tax problems in the end.

Award Winning Article Is Written By: Mr.Aniruddha Roy, Roll no. 2082009, BBA LLB, KIIT School Of Law, Bhubaneshwar

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Authentication No: JA100546958774-5-0121

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