The taxation of capital gains arising from the sale of shares in India depends on several factors such as the type of shares (listed/unlisted), the period of holding, and whether Securities Transaction Tax (STT) has been paid. Below is a structured summary of the applicable provisions:
1. Classification Based on Period of Holding
| Type of Share | Short-Term Capital Asset | Long-Term Capital Asset |
|---|---|---|
| Listed Equity Shares (Recognized Stock Exchange) | Held for ≤ 12 months | Held for > 12 months |
| Unlisted Shares | Held for ≤ 24 months | Held for > 24 months |
2. Taxation of Capital Gains
A. Sale of Listed Equity Shares (STT Paid)
Long-Term Capital Gain (LTCG) [> 12 Months Holding]
- Tax Rate: 10% under Section 112A
- Exemption: LTCG up to ₹1,00,000 in a financial year is exempt
- Conditions:
- STT must be paid on acquisition and sale
- No Indexation Benefit
Short-Term Capital Gain (STCG) [≤ 12 Months Holding]
- Tax Rate: 15% under Section 111A
- Conditions:
- STT must be paid on sale
B. Sale of Unlisted Shares
Long-Term Capital Gain (LTCG) [> 24 Months Holding]
- Tax Rate: 20% with indexation benefit
- Applicable under Section 112
Short-Term Capital Gain (STCG) [≤ 24 Months Holding]
- Tax Rate: Taxed as per normal slab rates
3. Other Points to Consider
✅ Surcharge and Health & Education Cess applicable as per individual total income.
✅ Set-off and Carry Forward of Losses:
- STCL (Short-Term Capital Loss) can be set off against STCG or LTCG.
- LTCL (Long-Term Capital Loss) can be set off only against LTCG.
- Losses can be carried forward for 8 assessment years if the return is filed within the due date.
✅ Non-Resident Indians (NRIs):
- Taxation similar to residents, but TDS applies at source on capital gains.
✅ Dividend Income:
- Taxable in the hands of shareholders at applicable slab rates.
4. Important Sections
- Section 111A: Tax on STCG on listed shares where STT is paid
- Section 112: Tax on LTCG for unlisted shares or listed shares not covered under 112A
- Section 112A: Tax on LTCG for listed equity shares where STT is paid
5. Illustrative Example
Suppose you sold 500 listed equity shares after 18 months for ₹5,00,000. The cost of acquisition (post-grandfathering, if applicable) is ₹3,00,000.
- LTCG = ₹5,00,000 – ₹3,00,000 = ₹2,00,000
- Exemption available = ₹1,00,000
- Taxable LTCG = ₹1,00,000
- Tax Payable = 10% of ₹1,00,000 = ₹10,000 + applicable cess & surcharge
6. Grandfathering Provision (for LTCG on Listed Shares)
For shares acquired before 31st January 2018, the cost of acquisition is taken as:
-
Higher of:
- Actual cost of acquisition, or
-
Lower of:
- Fair Market Value (FMV) as on 31st Jan 2018
-
Sale consideration