Tax on Sales of Shares

Short Term and Long Term Gains

Now that we understood capital, let us take a look at what short term and long-term assets are. Any capital asset that has been held by the taxpayer for no longer than 36 months before its date of transfer is deemed as a short-term capital asset.

A period of only 12 months before the transfer is considered as short-term capital assets for capital assets such as shares, units of mutual funds, listed securities, and government securities.

Let us explain this with the example. Consider a case where Mr Gopal purchases shares in April 2013 but decided to sell them in December 2014. Since the shares have been held for a period longer than 12 months, the capital asset in this case is treated as long term capital asset.

If he sold the shares in March 2014, he would have held it for a period lesser than 12 months and as such the asset would have been treated as short term capital asset.

Rate of Tax for Short Term capital Gains

Short term capital gains are covered under section 111A and the applicable tax rate is 15% (plus surcharge and cess will be levied as applicable).

Those Short Term Capital Gains that are not covered under the section 111A is taxed at a normal rate of tax which will be determined based on the taxable income of the individual taxpayer.

Tax Exemption Limits

There are certain basic exemption limits when it comes to taxable income of a person which means that up to a certain level of income, that person is not required to pay any tax.

As of 2015, the limits were as follows:

1. Resident individuals above the age of 80 are tax exempt to a limit of Rs 5,00,000 and incomes crossing this will be taxable.
2. For those resident individuals who are in the age group of 60 years to 80 years, the tax exemption limit is Rs 3,00,000 and any resident individual below the age of 60 has an exemption limit of Rs 2,50,000.
3. For non-resident individuals irrespective of the age and for Hindu Undivided Families (HUF) the exemption limit is Rs 2,50,000.