How to calculate Capital Gains Tax on Shares in India?

Tax exemption on long-term capital gains came into existence in 2004. However, Prime Minister Narendra Modi of India had told that taxpayers who profit from financial markets must contribute tax to India's growth. Many expected an imposition of tax on long-term capital gains in the budged 2017-18, but there was none on stock trading. However, there was a change in time limit as to how many years the long-term capital gains can be held without liable of taxes.

All transactions for shares do not happen on stock exchange platform. It also covers transactions from unlisted shares and listed shares in form of buy back or open offer by company directly. Thus capital gains from such transactions shall work as long-term in case the shares are held for a year or more from the date of sale. For shares sold in 12 months time, the amount falls in short term capital gains, and can be included in regular income and taxed as per tax rate applicable.

A capital gain is profit that an investor can make on selling his capital asset for a price more than what has been paid for the same. The capital asset must be transferred in the year before the current one. This income or profit can be taxed under the heading "capital gains". There must be a capital asset, transfer of the profit, capital or gains resulting from the transfer. The capital assets are put under two heads: 'Short-Term Capital Asset; and 'Long-Term Capital Asset'.

Short-Term Capital Asset:

If the taxpayer holds the shares and securities for not more than 36 months before its transfer date then it will be declared a short-term capital asset.

Long- Term Capital Asset:

The shares and securities if held by the taxpayer for more than 36 months before the transfer they will be declared long- term capital assets. For listed debentures, equity shares, units of equity-oriented mutual funds, Zero Coupon Bonds, UTI units, and Government Securities equity shares, period of holding will be for 12 months than 36 months. Transfer includes exchange, sale, and compulsory acquisition pertaining to any law and relinquishment.

Capital Gains Bonds:

As per Section 54EC, a person is capable of claiming tax relief once he/she invests in capital gains earned directly from long-term capital assets for bonds issued by the Rural Electrification Corporation Limited and National Highway Authority of India.

Bonds have to be invested in 6 months and these are not possible to redeem until 3 years of completion. However, you can earn interest on such bonds. One can invest up to Rs 50, 00,000 in one financial year. This benefit is only for long-term capital gain.

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