Tax filing on Capital Gains
Tax filing on Capital Gains
Hire Online CA Now
  • Trusted by 2 Million+ Users
  • 4.8 Star User Rating
  • Secure
    & Safe
Tax filing on Capital Gains
linkedin
whatsapp

Capital Gains Tax on Shares: How to Calculate Short-Term and Long-Term Capital Gains Tax on Shares Sold?

Updated on: 10 May, 2024 02:53 PM

The equity market has become one of the most popular investment options nowadays. However, investing in equity indicates potentially high profits as well as losses. These profits are subject to tax under the Income Tax Act, and the losses can be carried forward to future years. The tax on profit from the sale of shares can be classified into short-term capital gains tax on shares and long-term capital gain tax on shares. This guide explains all that you need to know about capital gains tax on shares and how to calculate tax on shares sold.

What are Capital Gains Tax on Shares?

Capital gains are profits from capital assets such as investment properties, shares, homes, cars, bonds, stocks, and even collectibles. It includes almost everything you own and recorded at the time of depreciation in ITR.

For example: If you sell a car. Then, the car is considered a fixed asset or capital asset. The capital gains on selling a car are the ‘profit’ earned on the capital asset’s value. It attracts taxes only if it is used for business purposes. It doesn’t attract tax if it is used for a personal purpose. If you find capital gain taxes intimidating, you can hire a professional CA to help you plan and save taxes on capital gains.


Short-term Capital Gain Tax on Sale of Shares

If you sell equity shares listed on a stock exchange within 12 months of buying them, you may either gain a short-term capital gain (STCG on shares) or experience a short-term capital loss (STCL). A short-term capital gain on shares occurs when you sell shares at a price higher than what you bought them for. Short-term capital gains are subject to a 15% tax rate.


Long-term Capital Gain Tax on Sale of Shares

If you sell equity shares listed on a stock exchange after holding them for more than 12 months, you may either realize a long-term capital gain (LTCG) or a long-term capital loss (LTCL).

Before the introduction of Budget 2018, gains from the sale of equity shares or equity-oriented units of mutual funds held for the long term were exempt from taxation. In other words, no tax was levied on profits from the sale of long-term equity investments.

However, the Financial Budget of 2018 changed this exemption. From that point forward, if a seller earns a long-term capital gain of more than Rs.1 lakh from the sale of equity shares or equity-oriented units of a mutual fund, the profit will be subject to a long-term capital gains on shares of 10%, along with applicable cess.


Capital Gain from Shares in 2024 - Tax Implications

The holding time of the assets is important to evaluate the tax implications. It would be best if you calculated capital gains separately for different types of assets. Plus, the tax slab rate differs for short-term and long-term equity investments. Capital gains on shares form part of equity and equity mutual fund types of assets.

Tax Rate on Short-term Capital Gain from Shares

Under section 111A of the Income Tax Act, 1961, a 15% tax rate is applicable on short-term capital gain on listed equity shares, excluding surcharge + cess. Slab rate will be applicable on other short term assets. As compared with long-term capital gains on shares, short-term capital gains get preferential tax treatment.

Tax Rate on Long-term Capital Gain from Shares

A 10% tax rate is applicable on long-term capital gain on shares without indexation.
For investors who want to determine the levied taxes on long-term gains, the Cost Inflation Index (CII) is a new term they must know. The Income Tax Department notifies this number for tax calculation on long-term gains in a specific financial year. Using this number, the investors can calculate the indexed cost of a capital asset. It also carries information related to the inflation-adjusted price of a particular asset.
The CII number is 331 for FY2022-23. Here is the list of CII values for different financial years -

Index CII number Financial Year
1. 331 2022-23
2. 317 2021-22
3. 301 2020-21
4. 289 2019-20
5. 280 2018-19

Note: Don’t forget that tax benefits on capital gains are not available for NRIs (Non-Resident Indians).

Here is the summary of Capital Gain Tax Rates on Different Types of Assets -

Capital Gain Tax Rates on Different Assets Short Term Long Term
Equity & Equity MF 15% 10% without indexation
Non-Equity MF (Gold ETFs, Debt Funds, Liquid Funds, etc.) Slab Rate 20% without indexation
Bonds Slab Rate 10% without indexation
Real Estate Slab Rate 20% without indexation

How to Calculate Short-Term Capital Gains Tax on Equity Shares?

The short-term capital gain on listed shares is the profit earned on the transfer of shares that are owned for one year or less time. Profit on transfer of unlisted shares held for not more than 24 months will be treated as short-term capital gain on shares. Its computation is done using the formula:

Short-term capital gains = Final sale price - (cost of acquisition + improvement cost + cost of transfer)

For Example: In October 2023, Mr.Aman bought 250 shares of a publicly traded firm for Rs.38,750, at a rate of Rs.155 per share. After 5 months, he sold them for Rs.48,000.

Here’s how the STCG on shares will be calculated -
Sales value: Rs.48,000
Brokerage at 0.5%: Rs.240
Purchase price: Rs.38,750
Therefore, Kuldeep's short-term capital gain is:

Rs.48,000 - (Rs.38,750 + Rs.240) = Rs.9,010
Tax on STCG on shares is calculated at 15%. Therefore, STCG tax will be 9010*15% = Rs.1351.5

Manually calculating your capital gains can be confusing and time-consuming. But don’t worry! You can say no to the calculation stress by letting our tax experts help you out.


How to Calculate Long-Term Capital Gains Tax on Equity Shares?

Long-term capital gain on listed shares is the profit earned on the transfer of shares owned for more than a year. Profit on transfer of unlisted shares held for more than 24 months will be treated as long-term capital gain. Its computation is done using the formula:
Long-term capital gains on shares = Final sale price – (indexed cost of acquisition + indexed improvement cost + cost of transfer)

For Example: Aman bought shares for Rs.100 on September 30th, 2022, and sold them for Rs.120 on December 31st, 2023. The stock value stood at Rs.110 on January 31st, 2023.

Out of the total capital gains of Rs.20 (i.e., 120-100), Rs.10 (i.e., 110-100) is considered non-taxable. The remaining Rs.10 is subject to taxation as capital gains at a rate of 10% without indexation.


Short-term and Long-term Capital Loss from Equity Shares

Short-term Capital Loss

Short-term losses from selling stocks can offset short-term or long-term gains from any asset. If not fully offset, they can be carried forward for eight years to offset gains during that period.

If you have a short-term capital gain/loss and you want to carry forward your losses, you must mandatorily file an ITR.

Long-term Capital Loss

Before Budget 2018, long-term losses from equity shares cannot be carried forward or adjusted. This was because long-term gains from listed equity shares were tax-exempt, so losses couldn't be utilized either.

However, post-Budget 2018 amendments, long-term gains over Rs 1 lakh are taxed at 10%, and losses from listed equity shares or mutual funds can now be carried forward.

From April 1, 2018, onwards, long-term losses can be set off against other long-term gains but not short-term gains. These losses can also be carried forward for up to eight years. Filing returns on time is crucial for utilizing these provisions.


What is Securities Transaction Tax?

STT applies to all equity shares bought or sold on a stock exchange. The tax consequences mentioned earlier apply specifically to shares listed on a stock exchange. Transactions on a stock exchange are subject to STT, thus these tax implications only pertain to shares for which STT is paid.


What are the Securities Transaction Tax Rate in India?

The Securities Transaction Tax rates in India are given in the below table -

Taxable Securities Transaction Securities Transaction Tax Rate in India Person Responsible Value for STT
Delivery-based purchase of equity share 0.1% Purchaser Purchase Price
Delivery-based sale of an equity share 0.1% Seller Sale Price
Delivery-based sale of a unit of oriented mutual fund 0.001% Seller Sale Price
Sale of equity share or unit of mutual fund 0.025% Seller Sale Price
Sale of option in securities 0.0625% Seller Option Premium
Sale of exercised option in securities 0.125% Purchaser Settlement Price
Sale of futures in securities 0.0125% Seller Futures Price
Sale of unit of ETFs 0.001% Seller Sale Price*
Sale of unlisted shares included in IPO 0.2% Seller Sale Price*
Purchase of units of equity-oriented mutual funds NIL Purchaser Not Applicable

What is the Eligibility for Tax Relief in Long-Term Assets?

For equity and equity-based investments such as mutual funds, the investors should hold the assets for two or more years. Then only they are eligible to get tax relief under the umbrella of long-term capital gain shares. Given below are the qualification years required to be considered a long-term asset. Moreover, it showcases that the bonds should be held for at least one year, real estate properties need to be held for at least two years, and non-equity mutual funds need to be held for at least three years to qualify as long-term assets.

tax relief in Long-Term Assets

If you have any capital gain from the sale of shares, you must report such income in ITR-2. ITR filing is mandatory in case of such capital gains, even if the income of the individual is below the basic exemption limit.

The ITR filing for FY 23-24 is almost here, and its time to buckle your shoes. You can now Pre-book an online CA with Tax2win and grab exclusive discounts.

Why Pre-book with Tax2win?

  • Never Miss the ITR Filing Deadline
  • Get Accurate Filing and Avoid Notices
  • Get Your Refund Faster
  • Avoid last-minute hassle
  • Be stress-free
  • Tax Filing for all - Freelancers, NRI, Business Owners, Salaried Persons
  • Lowest Tax Filing Fees in India

Pre-Book Your ITR Filing Now!


Frequently Asked Questions

Q- What is LTCG?

The full form of LTCG is Long Term Capital Gains. It represents the profit earned on the shares trading.


Q- How are capital gain taxes calculated?

A 15% tax rate is applicable on short-term capital gain on shares chargeable to securities transaction tax under section 111A, excluding some surcharge + cess. As compared with long-term capital gains on shares, short-term capital gains get preferential tax treatment. Whereas a 10% tax rate is applicable on long-term capital gain on shares without indexation.


Q- How much capital gain is tax-exempted?

The first one lakh in LTCG (Long-Term Capital Gains) on equity-based investments is considered tax-free under section 112A of the Income Tax Act, 1961.


Q- How to avail of up to 1 lakh tax exemption on LTCG?

In LTCG on equity shares, the initial earned one lakh rupees are liable for tax relief under the Income Tax Act of India. However, the capital gain above INR 1 lakh is subject to taxation at a 10% rate + underlying surcharge and cess rates.


Q- How to avoid capital gains tax on shares?

Up to 1 lakh, long-term capital gains on shares under section 112A are tax-free.


Q- What is the tax-free limit on LTCG in 2023?

Hopefully, the tax exemption on LTCG on shares in 2024 will be the same as it is for 2023, i.e., 1 lakh rupees in a financial year. Use Tax2win’s Tax Planning Optimizer before filing your ITR for FY 2023-24.


Q- Which ITR Form is filed for capital gain on shares?

Individual taxpayers need to file an ITR-2 form to report their capital gains income to the Income Tax Department on the sale of equity of shares.


Q- What happens if the sale of shares is treated as business income?

The profit or loss from sale of shares can either be treated as income from business or as income from capital gains, depending on the nature of the sale of individual taxpayer.

For individuals engaging in substantial share trading, such as day traders or those active in Futures and Options, their income is typically categorized as income from a business. Consequently, they are obligated to file an ITR-3, where their share trading income is reported under 'income from business & profession.' If you are a substantial share trader with business income from the sale of shares, you can get help from a professional CA to file your ITR-3.


CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.