Tax Rules on Shares and Debentures (Indicative Image)
Prior to the year 2018, there was no tax on long term capital gains on sale of equity shares. But after 2018 the rule changed. If there is a capital gain of more than 1 lakh on the sale of equity shares, then this gain will be taxed at the rate of 10%.
If you earn by selling shares, then you should know the rule of income tax. You should understand at what rate how much tax has to be paid on the earnings. This will easily save you from the hassle of the tax department. Most of the people are aware of the tax on salary, rental income and business income, but is there any information about the tax paid on shares? If not, then you can know here how much tax will have to be paid on the earnings from the sale of shares.
In the business of shares, you may have losses along with earnings. Keeping this thing in mind, we buy and sell shares. Accordingly, you also have to pay tax on shares or debentures. The gain or loss from the sale of equity shares is treated as capital gains.
What is capital gains rule
If the equity shares are listed on any stock exchange and are sold within 12 months of purchase, the short term capital gain will be considered in the hands of the investor. It may also be a short term capital loss as there are both profit and loss options on selling. If the investor buys and sells equity shares after 12 months, then the rule of long term capital loss will be applicable in case of long term capital gain or loss.
Prior to the year 2018, there was no tax on long term capital gains on sale of equity shares. But after 2018 the rule changed. If there is a capital gain of more than 1 lakh on the sale of equity shares, then this gain will be taxed at the rate of 10%. Let’s say Aman bought 100 shares on 30 September 2017 and sold it on 31 December 2018 for Rs 120. The stock price as on 31 January 2018 was Rs 210. Accordingly, Aman had a capital gain of Rs 20 (120-100), out of which Rs 10 would not attract any tax. The remaining Rs 10 will be taxed as long term capital gains as it has been sold after 12 months. This tax will be at the rate of 10 percent.
How much tax on short term
Short term capital gains are taxed at 15%. Irrespective of whether you fall in the slab of 10, 20 or 30 per cent, the special rate on short term capital gains has been kept at 15 per cent. If your total taxable income is below 2.5 lakhs by excluding short term gains, then you can make up this short term gain with short term gains. The remaining short-term gains will be taxed at the rate of 15% plus 4% cess.
If there is a short term capital loss on the sale of equity shares, the same can be set off with long term or short term capital gain of any capital asset as per the rules. If the loss is not completely set off, then it can be carried forward. There is a rule to carry forward the losses incurred in long term capital loss.
law of debentures
Suppose a person buys 1000 units at the rate of Rs 12, then he will have to spend Rs 12000. Later he sold the debentures at the rate of Rs 18 per unit and earned Rs 18000. In this way, there was a profit of Rs 6000 on the sale. If the investment was in the long term, it will attract 20% tax and 20% of 6000 will have to be paid at Rs 1200. If there is a short term capital gain, then tax will have to be paid on 6000 according to the tax net in which it will come.
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