Understand the tax implication on your listed shares
If a listed equity share is sold within 12 months of acquisition, the seller may achieve a short-term capital gain or incur a short-term capital loss
The Indian equity markets have been on the run this year, and there are no signs of that slowing down when BSE Sensex crossed 60,000 for the first time in September. Do you own or intend to own equity shares during such times? If so, then you should be aware of the tax ramifications associated with the sale of shares.
To acquire a better understanding, we must first understand that income or loss from the sale of equity shares falls under the head ‘Capital Gains’ when it comes to taxation; let’s understand what the implications on share are:
Capital gains and losses over the short-term period
If a listed equity share is sold within 12 months of acquisition, the seller may achieve a short-term capital gain or incur a short-term capital loss. When shares are sold at a price greater than the acquisition price, the seller realises a short-term capital gain.
When shares are sold at a price lesser than the acquisition price, the seller realizes a short-term capital loss.
Capital gains and losses over the long-term period
If equity shares traded on a stock market are sold after they year of the acquisition, the seller may achieve a long-term capital gain or incur a long-term capital loss. Before the introduction of the 2018 budget, long-term capital gains on the sale of equity shares were tax-free under Section 10(38).
According to the 2018 Financial Budget rules, if a seller makes a long-term capital gain of more than Rs 1 lakh on the sale of equity shares, the gain will be subject to a capital gains tax of 10%. Furthermore, the seller will not be able to reap the benefits of indexation. These requirements apply to transfers performed on or after April 1, 2018.
Taxation of gains from equity shares
Regardless of your tax bracket, short-term capital gains are taxed at 15%.
Long-term capital gains on equity shares listed on a stock market are exempt from taxation up to Rs 1 lakh. Long-term capital gains of more than Rs 1 lakh on the sale of equity shares will be subject to a 10% capital gains tax, and indexation will not be possible. It should be noted that the foregoing tax rates apply only when security transaction tax (STT) is paid on the transaction.
Taxation of loss from equity shares
Any short-term capital loss from the sale of equity shares can be offset against any short- or long-term capital gain from the sale of any capital asset. If the loss is not set off, it can be carried forward for an additional eight years and offset against any short-term or long-term capital gains made during those eight years.
Long-term capital losses can be offset against any other long-term capital gains, and unabsorbed long-term capital losses can be carried forward to the next eight years to offset against long-term gains.