CAPITAL GAIN
Gain arising on transfer of capital asset is charged to tax under the head “Capital Gains”. Income from capital gains is classified as: Short Term Capital Gains and Long Term Capital Gains. The taxability of capital gains depends on the nature of gain i.e., whether short-term capital gains or long-term capital gains. In this post, we will discuss about short term capital gains.
Gain arising on transfer of short-term capital asset is termed as short-term capital gains.
Short Term Capital Assests
Short-Term Capital Asset (reference Section 2(42A)):
Any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer will be treated as short-term capital asset.
However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months.
Note 1) : With effect from 01.04.2017, period of holding to be considered as 24 months instead of 36 months in case of unlisted shares of a company.
Note 2) : With effect from 01.04.2018, period of holding to be considered as 24 months instead of 36 months in case of an immovable property, being land or building or both.
Some Examples-
- Ishant Shrma is a small business man. In the month of March, 2014 he bought Residential Property and sold the same in January, 2016. In this case Residential Property is capital asset and holding period is less than 36 months. Hence, Residential Property will be treated as Short Term Capital Asset.
- Suresh Saina is a salaried employee. In the month of June, 2015 he bought equity shares of ICICI ltd (listed in a recognised stock exchange in India) and sold the same in March, 2016. In this example shares are capital asset and holding period is less than 12 months. Hence, shares will be treated as Short Term Capital Assets.
- NS Dhoni is a salaried employee. He bought unlisted shares of DABC ltd. in the month December,2014 and sold in August, 2016. In this case, shares are sold in assessment year 2017-18. Hence, period of holding for unlisted shares to be considered as 24 months instead of 36 months.Holding period is less than 24 months.Hence, shares will be treated as Short Term Capital Assets.
Short Term Capital Gains
Profits or Gains arising on transfer of short-term capital assets is termed as short-term capital gains.
In January, 2016 , Yuvraj Singh sold his residential house property which was purchased in May, 2014. Capital gain on such sale amounted to Rs. 5.90,000. In this case the house property is sold after holding for a period of less than 36 months and, hence, gain of Rs. 5,90,000 will be charged to tax as Short Term Capital Gain.
COMPUTATION OF SHORT TERM CAPITAL GAINS (reference Section 48) : The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : —
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto.
Short-term capital gain arising on account of transfer of short-term capital asset will be computed as follows :
|
Particulars |
Rs |
| Full value of consideration
(i.e., Sales consideration of asset) |
XXXX |
| Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset | (XXXX)
|
| Net sale consideration | XXXX |
| Less: Cost of acquisition
( Purchase price) |
(XXXX) |
| Less: Cost of improvement if any (capital expenses on improvement of capital asset) | (XXXX) |
| Short-Term Capital Gains | XXXX |
Example :
Ashish Lehra (40 years of age) is a salaried employee of BPace Ltd earned a salary of Rs. 7,80,000 p.a during previous year. In the month of December, 2015 he purchased gold worth Rs.12,80,000 and sold the same in August, 2016 for Rs.17,90,000. At the time of sale of gold, he paid brokerage of Rs. 16,000. He also paid Rs. 6500 for mediclaim and 16500 as a premium toward Life Insurance policy. What is the amount of taxable capital gain?
Solution:
| Particulars | Rs |
| Full value of consideration
(i.e., Sales consideration of asset) |
17,90,000 |
| Less: Expenditure incurred wholly and exclusively in connection with transfer of capital asset(Brokerage) | (16,000)
|
| Net sale consideration | 17,76,000 |
| Less: Cost of acquisition
( Purchase price) |
(12,80,000) |
| Short-Term Capital Gains | 4,96,000 |
After Computation of short term capital gain, Deduction u/s 54B/54D/54G/54GA is allowed if conditions satisfy.
| Particulars | Rs. |
| Short Term Capital Gain | XXXX |
| Less:(If any) Exemption available
u/s 54B/54D/54G/54GA |
(XXXX) |
| Taxable Short Term Capital Gain | XXXX |
Further, Short Term Capital Gains are classified as follows :
- Short Term Capital Gains other than covered under section 111A.
- Short Term Capital Gains covered under section 111A.
Short-term capital gains other than covered under section 111A:
-
Examples of Short Term Capital Gains(STCG) not covered under section 111A :
- Sale of assets like STCG on sale of immovable property, gold, silver, etc.
- STCG on debentures, bonds and Government securities.
- STCG arising on sale of equity shares other than through a recognised stock exchange.
- Short Term Gains arising on sale of shares other than equity shares.
- STCG arising on sale of units of non-equity oriented mutual fund (debt oriented mutual funds).
-
Tax rates of STCG :
Normal STCG i.e. STCG other than covered under section 111A is charged to tax at normal rate of tax which is determined on the basis of the total taxable income of the taxpayer.
-
Deductions under section 80C to 80U :
Deductions under sections 80C to 80U can be claimed from Short Term Capital Gains other than covered under section 111A.
Example:
Computation of Tax if Short term capital gain not covered u/s 111A:
From the above example, We can see Ashish Lehra has salary income of Rs.7,80,000 and short term capital gain of Rs. 4,96,000 during the previous year 2016-17.
| Particulars | Rs. |
| Salary income
Short-Term Capital Gains ( Not covered u/s 111A)
Gross Total Income
Less: Deduction under section 80C to 80U (allowed) (Mediclaim and LIC premium paid)
Total Income or Taxable Income
Tax on total income (see Tax Slab rate for AY 2017-18) Add: Education cess @ 2% Add: Secondary and Higher Education cess @ 1%
Tax liability |
7,80,000
4,96,000
12,76,000
23000
12,53,000
2,00,900 4018 2009
2,06,930 |
Also Read : Computation of Short-term capital gains covered under section 111A.
Also Read : Long Term Capital Gain And Computation of Long Term Capital Gain.
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