Understanding Capital Gain Tax on Transfer of Shares
Capital Gain on Share Transfers: Navigating the tax landscape for transferring shares in India involves various considerations. Factors such as the holding period, acquisition method (primary market, secondary market, gift, inheritance), market purchase (with or without STT), and the grandfathering rule for shares purchased before January 31, 2018, play crucial roles.
Taxation on Transfer of Listed Shares
Gains from transferring shares listed on recognized stock exchanges in India are categorized based on the holding period. If shares are held for over 12 months, the gains are classified as long-term. Otherwise, they are considered short-term.
- Short-Term Capital Gains (STCG): These gains are taxed at 15% under Section 111A of the IT Act.
- Long-Term Capital Gains (LTCG): Gains exceeding Rs 1 lakh in a financial year are taxed at 10% under Section 112A of the IT Act. Gains up to Rs 1 lakh are exempt from tax.
To benefit from these special rates, the shares must be held as a capital asset and the transaction must be subjected to Securities Transaction Tax (STT). Transactions through non-recognized stock exchanges might not incur STT, affecting the applicable tax rates.
For transactions without STT:
- STCG: Taxed according to the investor’s applicable slab rates.
- LTCG: Taxed at 20% with indexation benefit or 10% without indexation benefit, per Section 112 of the IT Act, based on what is more beneficial to the investor.
Taxation on Transfer of Unlisted Shares
For unlisted shares, the gains are categorized based on a holding period of 24 months. Holding shares for more than 24 months results in long-term gains; otherwise, they are short-term.
- Short-Term Capital Gains: Taxed according to the investor’s applicable slab rates.
- Long-Term Capital Gains: Taxed at 20% under Section 112 of the IT Act with the benefit of indexation.
It is crucial to note that shares held as stock-in-trade, rather than as capital assets, are taxed under “Profits & Gains from Business & Profession” instead of “Capital Gains.”
Understanding these distinctions and the applicable sections of the IT Act can help investors manage their tax liabilities effectively when transferring listed and unlisted shares.
For more details about Taxation of Sale of Listed Shares CLICK HERE
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