Tax Planning for Capital Gain on Sale of Listed Equity Shares


Equity holders in India make two types of capital gains for the purpose of the Income Tax Act, 1961: short-term capital gains and long-term capital gains. Short-term capital gains refer to gains from selling shares that were held for less than one year, while long-term capital gains refer to gains from selling shares held for more than one year.

Tax Rates:
The tax rates for these gains are different. Short-term capital gains on listed equity shares are charged at a rate of 15%, while long-term capital gains on listed equity shares are charged at 10% on gains exceeding Rs. 1,00,000.

Set Off of Losses:
When it comes to setting off losses, long-term capital losses can only be set off against long-term capital gains. This means that you cannot set off long-term capital losses against other sources of income. However, a short-term capital loss can be set off against both long-term and short-term capital gains. It's important to note that you cannot set off a short-term capital loss against other sources of income.

Possible tax Planning:
There are some possible tax planning strategies that equity holders can use to minimize their tax liability. One strategy is to sell holdings that are in losses and either churn the funds into other stocks or re-buy the same stock. This strategy allows you to book a loss that can be set off against any short-term or long-term gain you have for the current year, reducing your tax liability.

Another strategy is to take advantage of the exemption for long-term gains up to Rs. 1,00,000. If you have a holding that you want to continue to hold and it would result in a long-term gain if you sold it today, it may be better to book the profit and re-buy the holding if the gain is up to Rs. 1,00,000. This way, you can take advantage of the exemption that would have lapsed anyway.

In conclusion, equity holders should be aware of the different types of capital gains and their corresponding tax rates, as well as the rules for setting off losses. By utilizing tax planning strategies, equity holders can minimize their tax liability and maximize their returns.

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Disclosures and Disclaimer

This article is being furnished for informational purposes only. We make every effort to use reliable & comprehensive information, but we do not represent that the contents of the article are accurate or complete.

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